W&M ScholarWorks

Dissertations, Theses, and Masters Projects Theses, Dissertations, & Master Projects

1981

Information, rationality, and politics: A critique of Anthony Downs's "An Economic Theory of Democracy"

Robert F. Graboyes College of William & Mary - Arts & Sciences

Follow this and additional works at: https://scholarworks.wm.edu/etd

Part of the Economic Theory Commons, and the Political Science Commons

Recommended Citation Graboyes, Robert F., "Information, rationality, and politics: A critique of Anthony Downs's "An Economic Theory of Democracy"" (1981). Dissertations, Theses, and Masters Projects. Paper 1539625145. https://dx.doi.org/doi:10.21220/s2-qtpd-nb02

This Thesis is brought to you for free and open access by the Theses, Dissertations, & Master Projects at W&M ScholarWorks. It has been accepted for inclusion in Dissertations, Theses, and Masters Projects by an authorized administrator of W&M ScholarWorks. For more information, please contact [email protected]. Information, Rationality, and Politics: i t A Critique of Anthony Downs's

An Economic Theory of Democracy

A Thesis

Presented to

The Faculty of the Department of Government

The College of William and Mary in Virginia

In Partial Fulfillment

O f the Requirements for the Degree of

Master of Arts

by

Robert F. Graboyes

1981 APPROVAL SHEET

This thesis is submitted in partial fulfillment of

the requirements for the degree of

Master of Arts

Approved, December, 198T

Donald J

Roger W . Smith

Edwaia J . Woodhouse DEDICATION

This page can go to no one but Mom and Dad who did so much to make this and everything else possible.

mi TABLE OF CONTENTS

Page

ACKNOWLEDGEMENTS...... v

LIST OF FIGURES ...... vi

ABSTRACT...... vii

INTRODUCTION ...... 2

CHAPTER I. DOW NS: A N O U T L IN E ...... 9

CHAPTER 2 . IN TR O D U CTIO N TO THE CRITIQUE...... 20

CHAPTER 3 . UNCERTAINTY AND THE RATIONAL

INDIVIDUAL ...... 26

CHAPTER 4 . COM PETITIO N A N D IN FO R M A TIO N

SKEWING ...... 37

CHAPTER 5 . CO LLUSION A N D PARALLELISM ...... 49

CHAPTER 6 . BIASES IN C O G N IT IV E PROCESSES ...... 60

CHAPTER 7 . RELATION TO THE SPATIAL COM PETITIO N

MODEL...... 75

CHAPTER 8 SUMMARY...... 82

APPENDIX...... 90

BIBLIOGRAPHY...... 91 ACKNOWLEDGEMENTS

Thanks are owed to so many who helped me in one way or another

during my time at William and Mary. Following are some: Professors Donald

Baxter, Roger Smith, and Ned Woodhouse gave freely of their time reading

and commenting upon the many versions of this thesis. A special thanks is

owed to Ned and his family for a very special friendship and the sharing of

a summer with me. Professors Leonard Schifrin and Carl Moody gave im­

measurable amounts of advice, all of which seems to have been correct.

Professors Alan Abramowitz, John McGlennon, Ronald Rapoporf, Frederick

Harris, and David Finifter all contributed a great deal as well. Personal

thanks go to Greg Stewart and Kevin Sullivan for our year at Bransford

Court; Pat Channon and Sue Anderson gave support and friendship through the year and since. The other graduate students in the Department of

Government were an unselfish and supportive group and displayed a great sense of comradery; John Kownack, Joey Bonino, and Wayne Knight

(and Lisa Knight) deserve special thanks. At the New York end of this project, I thank Alanna Siegfried for help with the preparation of this thesis and with everything else imaginable. LIST OF FIGURES

Figure

1 . Utility maximization over x and y with certainty...... 27

2. Probability distribution over x resulting from Figure 1*...... 27

3. Utility maximization over x and y with uncertainty...... 30

~4. Probability distribution over x resulting from Figure 3...... 30

5 . Adding unbiased inform ation...... 31

6 . Competition providing unbiased information ...... 34

7 . Lack of competition providing biased information...... 41

8. Probability distribution with a high degree of uncertainty...... 52

9 . Adding biased information from noncompetitive sources...... 52

10. Competitive force reducing bias ...... 52

11. Collusion fails on x-axis, succeeds on z-axis...... 52

T2. Collusion fails on both x - and z-axes...... 52

13. Change in population distribution from change in one agent's

probability distribution...... 76

14. Biasing of the probability distribution of the agent in Figure 1 3 ,...7 6

15. Biasing of many individuals in the population...... 76

16. Bimodal population distribution ("hawks" and "doves")...... 76

17. Ineffective competition ...... 76

18. Population polarized by com petition...... 76

19. Lack of competition biases population distribution...... 80

20. Regulatory agency reduces but does not eliminate bias...... 80

vi ABSTRACT

This thesis offers a criticism of the rational actor model in the formulation of political theory. A critique is offered of Anthony Downs's An Economic Theory of Democracy which was among the earliest works attempting to integrate this aspect of economic theory into a political modeI.

An encapsulation of the argument of the thesis goes as follows:

There may be systematic biases in individuals' reception and inter­ pretation of information. This can limit the explanatory value of the ra­ tional actor model by causing the decision-making processes predicted by the model to differ widely from the actual processes of society. Problems with the individual's reception and interpretation of information cause a greater uncertainty and hence a greater variance in his decisions.

Factors leading to variance from rational choice include increased specialization of labor, level of technology, and time horizons of the effects of decisions. Biases can occur both in the way individuals gather and receive information and in the way they interpret information. Further, there is no reason to believe the tacit assumption of the rational actor model that individuals' biases will "average out" to a rational society. Biases may be systematic.

This thesis argues that to more closely approximate the realities of the modern polity, models should incorporate elements of social psy­ chology and information theory. Some suggestions regarding this synthesis are made. Information, Rationality, and Politics

A Critiques of Anthony Downs's

An Economic Theory of Democracy Introduction

In 1957, Anthony Downs published An Economic Theory of Democracy, a widely regarded book considered a seminal work in formal democratic theory.1 This thesis criticizes certain assumptions implicit in Downs's m odel.-

These assumptions, if erroneous, might call into question some of the book's

findings. Downs sought to provide a model of government compatible with the general equilibrium theory of economics. His formulation differs from that of standard economic models in that government expenditures are treat­ ed as endogenously, rather than exogenously generated.2 For this, his model assumes the rationality of individual voters in the same way that economic theory assumes the rationality of consumers and producers in the marketplace. 3

The assumption of rational individual behavior in the electorate re­ quires implicit assumptions about the information possessed by citizens.

Specifically, Downs's spatial competition model assumes that voters are aware of the possible policies available to the electorate and that voters can be placed along continuums of policy preferences.4 The individual in the model faces uncertainty which can be lessened by expenditure on information.

His dilemma is how best to reduce the cost of getting information and how best to use the information he has. Downs explicitly assumes that an in -

5 crease in a person's information expenditure w ill reduce his uncertainty.

Downs does not consider the possibility that the structure of the 2 3

polity's information sources may in some cases cause increased information

expenditures to lead the voter farther from rational choice due to biases in

and filtering of the information he receives. There may be situations in

which information can be obtained only from one whose interests run

counter to giving unbiased information.

Consider an everyday example of how this might occur. Someone

whose yard rake is broken may choose to have it repaired. His understanding

of rake repair is probably sufficient to estimate accurately the cost of such

a job. A great deal of information is available both from his own past

experiences and from readily available price and quality comparisons from

other repairmen and consumers.

On the other hand, a man with an automobile in need of repair may

not be as fortunate as the man with the rake. Because he has little know­

ledge on the mechanics of automobiles, he may be in some sense at the

mercy of the repairman. He may be charged excessively for the quality of

the work done. He may pay for unnecessary work. According to the common

criteria of welfare economics, the case of the yard rake provides an

efficient allocation of resources while excessive payment to the mechanic

misallocates resources. Consider a case in which the mechanic discards a

part not in need of repair. The car owner's welfare is reduced because he has less money to spend on other goods and has gained nothing for his expenditure f Productive resources are diverted from other uses into produc­

ing an unneeded part. 4

Such situations as this are at the heart of debates on the relative merits of market and planning economic systems. The car owner may reduce his costs by seeking competitive estimates, talking with friends who have knowledge of car repairs, reading consumer reports, and so on.

He reduces costs of information by seeking the most efficient system of gathering knowledge. This is the same way in which the voter in Downs's book seeks efficient information networks. The citizen cannot be omniscient.

There is no need for him to learn everything about automobile mechanics.

In terms of mathematical statistics, he wants an information system which w ill most efficiently collapse his perceptions around the truth.

Thomas Jefferson wrote of the virtues of a simple agrarian society.7

!t would not be unrealistic to argue that some of his arguments fit well into the framework of information considerations. In the Jeffersonian vision, the citizen would be best prepared to enjoy liberty if he had a solid understanding of the things around him which affected his life .

The modern Western polity bears little resemblance to the Jeffersonian ideal. Much of the information about major factors in a person's life is unknown to him. Information is specialized. Complex organizations act as information-processing mechanisms. Each individual within these organizations possesses some knowledge unknown to anyone else. O f course, this is not by itself new, but it has been argued that the degree of the partitioning of information across individuals has increased dramatically! 5

A bureaucrat in charge of some program may know the costs and benefits of his program in a way that no one else knows. Further, if he is the only source of some of the information about that program, then it may be very costly for anyone else to try to estimate the value of the program independently. In some sense the worker within the bureaucracy becomes something akin to the automobile mechanic mentioned earlier.

The cost of getting information may be more expensive than the information could ever be worth. It can be argued that knowledge held by one person or by a small group of people can have a power similar to that of a re­ source held by a monopolist. There is no reason to believe that a rational person with such information would not use it in his own self-interest10

(unless the case of altruism is pleaded).

The liberal belief that the individual is best able to judge his own preferences is the ethical basis for the doctrine of individual sovereignty11

It would follow that in an ethical sense, it is best for the individual to have the broadest possible awareness of the effects of his choices. Part of the doctrine also holds that the individual's judgments should come as much as possible from himself-not from a king or state or feudal lord.12This paper argues that Downs falls short in differentiating between decisions made by an individual and those imposed upon him by others. It also seeks to examine some of the processes which make up decision-making in cases of both markets and controlled situations.

Following is an outline of the course this thesis w ill take: 6

1) Chapter OnerDowns's theory will be outlined with a concentration on those aspects related to the previous discussion.

2) Chapter Two: This will discuss the process of individual decision­ making (given a fixed set of preferences). There w ill be discussion of the quantity and accessibility and the cost of information.

3) Chapter Three: !t is argued that the specialization of labor, pro­ duction, and knowledge in society has increased the cost of information and reduced the probability of securing desired information. Here w ill be discussed some of the ramifications of this change.

4) Chapter Four: It w ill be argued that individual biases in information may not be randomly distributed across the polity. Instead, it may be skewed in a way that systematically distorts individual decisions. Given this, it becomes logical for the holders of some information to use it ways serving self-interests but at the expense of others. It w ill be discussed why a small number of actors with particular information may act in ways resembling economic models of oligopoly. 7

Notes to the Introduction

1. In a 1965 foreword to Downs's book, Stanley Kelley, Jr. wrote,

"Some years from now I shall be surprised if Downs' work is not recog­

nized as the starting point of a highly important development in the

study of politics; its influence is already considerable and continues to

grow. " Anthony Downs, An Economic Theory of Democracy (New York:

Harper and Row, Publishers, In c ., 1957).

2. Ibid., p.3.

3. Ib id ., p.7.

4 . These continuums srepresent the various levels of a particular policy

which may be chosen by the government (i.e. expenditure levels or

levels of activity).

5. Ib id ., p.215.

6. Welfare here is synonymous with utility. See Ibid., p. 17 for a

fuller explanation of the social welfare function.

7. "..the strong allurements of great cities to those who have any turn

for dissipation, threatans to make them here, as in Europe, the sinks of

voluntary misery." Thomas Jefferson, The Writings of Thomas Jefferson,

ed. Albert Ellery Bergh, vo l. 13 (Washington: The Thomas Jefferson

Memorial Association, 1907), pp. 272ff. 8

8 . Victor Thompson refers to this as the "categorization of data."

Victor A. Thompson/ Modern Organization (New York: Alfred A. Knopf,

1965).

9. See John Kenneth Galbraith, The New Industrial State (Boston:

Houghton M ifflin C o ., 1967), pp. 27-28 , 407-409 , 414-415.

1 0 . Downs quotes John C . Calhoun: ”That constitution of our nature

which makes us feel more intensely what affects us directly than what

affects us indirectly through others, necessarily leads to conflict between

individuals. Each, in consequence has a greater regard for his own safe­

ty or happiness than for the safety or happiness of others: and, where these

come into opposition, is ready to sacrifice the interests of the others to

his own." John C. Calhoun, "Disquisition on Government," Public

Opinion and Propaganda, ed. by Katz, Cartwright, Eldersveld, and Lee

(New York: The Dryden Press, 1954),. p. 15.

11. See Robert A. Nisbet, The Quest for Community (New York:

Oxford University Press, 1953), p. 224 for a discussion of the evolution

of 'his tenet.

12. See Adolf A. Berle, Jr. and Gardiner C. Means, The Modern

Corporation and Private Property (New York: The Macmillan Company,

1932), pp. 289-299. Chapter 1

Downs: An Outline

*n this chapter, an outline is provided explaining the central points

of Downs's theory. Especially important are the points relating to the spa­

tial competition model used by Downs and essential to the critique. 1

Downs sought to provide an economic theory of the state as a method

of integrating government into the general equilibrium model of the econo­

my. Normally, government is treated in such models only as an exogenous variable. Downs formulates a model defining politics as the selection and enforcement of the preferences of individuals. Incorporated in this is the assumption of individual, self-interested rationality borrowed from economic theory. It is postulated that government maximizes the self-interest of government officials rather than some notion of social welfare. Voting and political decision-making both are determined by individuals maximizing personal utility. 3 The model in itially is deterministic, but this is later tempered by adding uncertainty. Both voters and politicians in the model calculate the marginal costs and benefits of purchasing information and make decisions accordingly.1* From this analysis, Downs derives a set of hypotheses. 5

Following is a more complete synopsis of An Economic Theory of

Democracy:

9 Downs first introduces the assumption of individual rationality which is the cornerstone of the theory. The theorist, he says, makes assumptions regarding individual behavior which may or may not be true in the real world, but which he believes have explanatory power regarding the real world. The rational individual in the theory is one who has an indifference map such that he is able to calculate his goals, given a set of circum­ stances.6 He calculates the most reasonable way to meet his goals and pursues them in that manner. Importantly, the goals themselves are irrelevant to the definition of rationality; no ethical or positive judgment is offered regarding desires. "Rationality" refers only to the means employed toward the desired goals. Downs offers a simplifying assumption that individuals only use the political devices for political purposes. In other words, no one w ill vote for a party because that action w ill please a spouse or for any other non- political reason. Downs calls this single-minded individual "homo politicus" after the utilitarians' "homo economicus, " the heartless profit maximizer with no motives beyond personal enrichment.

Downs assumes that governments seek to maximize political support. He assumes periodic elections at regular intervals, unlimited freedom of action by government within the bounds of the constitution, and a prohibition against government interference with the actions of other political actors. No re­ strictions may be placed on freedom of speech, freedom to campaign for public office, or freedom to criticize the government. Early in the book, he assumes perfect information , though this assumption is later relaxed by the introduction of uncertainty. Government is introduced as a specialized 11

agency within the division of labor, no different from any other specialized

body. Government's purpose is the enforcement of decisions in cases of

disputes within a geographical area. It holds a monopoly on this power

and has authority over all other organizations and individuals.

The political party is the organization which competes for control of

the government. It is defined as a coalition of individuals whose purpose

is to gain or hold control of the governing apparatus by legal means.

Downs rejects any organism!c explanation of party behavior—theory?,

treating organizations as single-minded entities—but considers the party as

something in between an amorphous mass of individuals and a unit? He

considers the party a "team" of individuals who agree on goals so that each member of a party has the same views as any other member of the

party. Members seek not to maximize party u tility , but individual self-

interest. This part of the model is derived from Adam Smith's assertion

that social good comes primarily from private motivations ; Downs says

this is as true of politics as of economics! °ln his model, the private mo­

tivation of politicians is to gain or hold political office. This is accomplished by providing social goods the party believes w ill attract the votes of the electorate. Thus, what are generally considered the ends of government are held to be the means parties use ro accomplish the private ends of their members.11

The voter, similarly has private ends .with respect to government.

He calculates the benefits he believes he is receiving from government policies. He also calculates the benefits he believes he would receive 12

from alternative policies. Benefits are defined in terms of utility income.

This includes not only personal goods the voter receives from the policies, but also whatever items he may choose to include in his own goals(i.e. satisfaction from feeding the starving overseas). He calculates the utilities he expects to receive from each party's probable policies and votes for

the party giving the highest expected utility income. These calculations are based on a combination of promises of the parties, past performance by the parties, and subjective beliefs regarding the future. Important to later discussion, Downs also considers a possible "party differential threshold."

This supposes that a voter's party differential calculation is not a continuous function but a discrete one. Below a certain differential, he is indifferent.12

Ultimately, Downs wrote, the voter's evaluation depends on the information he has on policies and the relation between the policies with which he is familiar and the relation between these policies and his personal goals.

Parties in the model make calculations similar to those of individuals,

1 3 based on marginal costs and benefits. The hypothesis is that governments alter policies marginally so that marginal gain of votes, from increased ser­ vices just equals the marginal loss of votes from increased taxation. This is equivalent to the rational entrepreneur in economics who produces at a level at which the last increment of revenue equals the last increment of cost.

Following this marginal policy, the party in power w ill seek to make its decisions subject to a hypothetical poll of the level of expenditures desired by voters. In a world of certainty, however, the governing party must be concerned with the "Arrow problem" and certain strategic coalitions of minority partiesI HThese may be explained as follows:

The Arrow problem provides that given certain arrays of preferences of individuals, no democratic voting strategy can resolve issues such that a majority of the voters are satisfied. Consider the following preference array: A ,B , and C are voters. f,g , and h are possible policies. Preferences are:

VOTER A B c CHOICE First f g h

Second g h f

Third h f g

No alternative enjoys majority support for first choice. Any policy chosen faces a majority of the electorate which prefers another particular policy.

For example, if policy f is chosen, voters B and C prefer policy h. Here, the only task of an opposition party is to wait until such a situation arises, endorse the policy preferred by the majority, and wait to be elected.

Crucial to the argument is the equality of franchise which ranks the preferences of each person equally1.5Downs relaxes this assumption by intro­ ducing the "passionate m ajority." A passionately held minority view may prevail over a lukewarm majority view because of the political interplay resulting from this difference in intensity of views. A bargaining process may affect the government's estimate of the costs and benefits(in terms of 14

votes) of a policy. This process may result in markedly different outcomes

than one where there is no variance of opinion intensity.

Uncertainty is introduced into the model because in the real world

there is no sure knowledge regarding the course of future events and be­

cause knowledge of past and present events is lim ited. Downs considers

most uncertainty removable through the acquisition of information but

considers some (such as knowledge of future events) intrinsically uncertain.

He differentiates between lack of contextual knowledge and lack of infor­

mation.16 The former is an inability to use data, available or not. The latter

is a lack of data one could use.

The voter may be uncertain because he is unaware that utility in­ comes have changed. He may be uncertain what actions have been taken and he may be unaware of possible results of government actions. He may be unaware of what effect he himself has on government decisions, and he may be unaware of how others plan to vote.

Political parties may be uncertain because future states of the economy cannot be predicted, because politicians are unsure of possible effects of policies, the influence of certain voters, and the policies of other political parties, and because it is uncertain how much information is required to influence voters.

Reducing uncertainty requires additional information, and that re­ quires expenditures in time and other resources. So, some individuals find it in their interests to be politically active, and some do not, depending on their indifference maps. Because a voter may wish to be informed, if not active, he may look to political leadership for information. Similarly, government decentralizes its own information-gathering in order to reduce uncertainty about voters' preferences. According to Downs, the inequality of political knowledge, political activism, and political influence modifies the equality implied by universal suffrage.

Because voters are attracted to particular parties and leaders in this quest for information, ideologies develop as a way of avoiding an infinity of choices and, hence, the Arrow problem. The voter no longer needs to be informed about everything affecting his utility income.

Downs represents this clustering of views as placing voters along a left-right continuum of policy. This is represented by a spatial competition

1 7 model borrowed from Harold Hotelling. This model was written as a theory of oligopolistic behavior. It demonstrated that two mobile competitors

(think of hot dog stands on a boardwalk), given a population distribution, w ill both tend to move toward the mean of that distribution. By this hypo­ thesis, two parties w ill tend to move toward the center of a political spec­ trum. Downs analyzes this tendency in both a two-party system and a multi-party system with parties distributed along the ideological continuum.

He argues that this distribution is the primary determinant of the nation's politics. No attempt is made to explain the origin of particular distributions; that is assumed to result from personal preferences. Changes in the distribution resulting from changes in taste and changes in the electorate are major 1 8 events historically and politically. Also, parties attempt through persuasion to move the population distributions. Downs provides an extensive discussion 16

of the peculiar problems of multi-party democracies, but that discussion is

largely irrelevant to this thesis.

The process of citizens becoming informed is crucial to Downs's model.

Individuals limit the amount of information they acquire before making de­

cisions. Information is distributed by individuals who have their own self-

interests (which w ill, in general, not coincide with those of any particular

voter). So, the voter exposes himself to competing information sources in

order to compare data. He tries to find sources whose values are like his

own. He wants enough information to make an intelligent decision, but no

more. The process of choosing among sources is trial and error, checking

occasionally for accuracy. The voter equates what he believes is the margin­

al benefit of additional information with the marginal cost of obtaining it.19

People try to increase personal utility by decreasing the costs of obtaining

information. This results in further specialization of labor. Professional

journalists, political agents, interest groups, political parties, and the government itself become specialized data disseminators.

Where voters are too dissatisfied with any political choices, they may rationally choose to abstain from voting. Political parties have to consider not only the population distribution in ideology, but also how many voters are lost from the election system itself because of a given policy. The voter practicing rational abstention simply finds the party differential

2 0 threshold too high to warrant voting. *7

Notes to Chapter 1

1. Downs, p. 115.

2. Ibid., p. 28.

3. Ibid., pp. 21-50.

4. Ibid., p. 52.

5. Ibid., pp. 295-300.

6. An indifference map is a mathematical or geometrical representation

of the individual's preferences. It is roughly synonymous with "utility

function." See ibid., pp. 36-37.

7. Ibid., p. 5.

8. Ibid., p. 62.

9 . Ib id ., p. 15; also see James Buchanan, "The Pure Theory of

Government Finance: A Suggested Approach," Journal of Political

Economy 57 (December, 1949): 496-505.

10. "Man has almost constant occasion for the help of his brethren,

and it is in vain for him to expect it from their benevolence only...

It is not from the benevolence of the butcher, the brewer, or the

baker that we expect our dinner, but from this regard to their own

self-interest. We address ourselves not to their humanity but to their

self-love, and never talk to them of our own necessities, but of their

advantage," Adam Smith, The Wealth of Nations, Modern Library Edition 18

(New York: The Modern Library, 1937), p. 14.

11 . Downs, p . 28.

12. Ibid., p. 46.

13. Ibid., p. 28.

14. Kenneth J. Arrow, Social Choice and Individual Values (New

York: John Wiley and Sons, Inc.; 1951), ch. 1. Tullock wrote that,

"Arrow is interested in the question of whether some given method of

voting w ill in every conceivable case, produce a satisfactory result.

He proves that there is no voting rule which w ill meet this test in

choosing between three or more alternatives. He does not, however,

disprove the existence of a voting rule which functioned unexception-

ably for 99999999999999999999999999999 cases out of each 100000000-

000000000000000000000...

...Arrow was the first to dare to challenge the traditional theory

of democracy by saying that no voting rule leading to rule by 'the

w ill of the majority’ was possible." James M« Buchanan and Gordon

Tullock, The Calculus of Consent: Logical Foundations of Constitutional

Democracy (Ann Arbor: The University of Michigan Press, 1962), p. 334.

15. Downs, p. 64.

16. Ibid., p. 79.

17. Harold Hotelling, "Stability in Competition," The Economic

Journal 39 (1929): 41-57.

18. Downs, p. 128. 19

T9. Ibid., pp. 214-216.

20. Ibid., pc 261. Chapter 2

Introduction to the Critique

In the critique which comprises the remainder of this thesis, An Eco­ nomic Theory of Democracy is criticized because its particular form of the rational individuality assumptions may reduce the book's descriptive powers.

This critique argues that it is the information structure of the society which is inadequately represented, and that this structure is critical to the way a polity operates. Downs implicitly assumes that information, while imperfect, is at least distributed in a more or less random fashion so that increased information necessarily means better decision-making.

This is analogous to some terms used in statistics. A scientist begins an hypothesis with intuition and incomplete data. Before he collects more data, any inferences he makes will be subject to great variance. He can never gather all available data, but he collects the information to some point at which his findings can be considered "significant." 1 Statistical models require that tradeoffs be made between bias in estimation and efficiency of the estimator. A biased estimator may be useful if its expected value is in some sense "close" to the true mean and if it collapses around the truth more quickly than any unbiased estimator. A major task of the scientist is to determine when he has enough information to satisfy his needs; another is to determine the optimal tradeoff between bias and

20 21 efficiency.

The voter in a democracy can be viewed as following a similar procedure. He cannot possibly learn all that would be helpful in making his decisions. So, he must determine the optimal amount of information to get. Also, he must balance between sources which are biased but relatively accurate in news content against those which are unbiased but whose accura­ cy is subject to wide variance(bias vs. efficiency).

There is a third statistical characteristic analogous to the political problem— consistency. A consistent estimator is one in w h ich, as the amount of information becomes very great, becomes unbiased and variance reduces to nothing. An inconsistent estimator w ill not co’lapse around the truth, even as the amount of information becomes enormous. The analogous state of affairs for the voter would be one in which his "estimator" of the truth on a particular policy comes from sources in such a way that even great expenditures on information w ill not move him closer to the truth.

A common such example in political literature is the cost and benefit of military hardware. A voter may receive relatively unbiased but inefficient information by reading newspapers. But, if he wants more complete data, he may only be able to secure them from military sources. Such sources are likely to be heavily biased. It would not be in their interests to divulge all information, so they do not do so. The result is that a citizen seeking the truth on such a question may not find it useful to collect more data.

The assumption of rational individuality does not recognize this problem in information dissemination. The assumption has roots in 22

Nineteenth Century liberalism, utilitarianism, and welfare economics.

It has been considered a valid (if not necessary) tool in economics.

Milton Friedman argued for its value because consumers and entrepreneurs

2 seem to act "as if" they were obeying economic laws rationally* It will

be argued in this thesis that the way this methodology is used here requires

an assumption that the polity's information sources are diverse and decen­

tralized. The argument for use of this methodology in economics is that

the market process provides a relatively efficient disseminator of information,

allowing "equilibrium" prices to be approximated. John Kenneth Galbraith

argued that in the case of oligopoly this information system(the price sys-

3 tern) breaks down. His argument was that in what he termed the planning sector, prices were no longer market signals but simply figures administered by the firms. Further, he argued, the presence of vast sums of advertising revenues overwhelmed other information sources. Friedrich A . Hayek argued that a socialist planned society could not maximize the utilities of individu­ als because no single agency(i.e. the government) could handle the mass of information necessary for the operation of an efficient marketplace.

The government in a planned society would be overloaded with information.

The question then, is whether, as Galbraith said, society is already planned and whether this distorts information in the way Hayek predicted a planned economy would. Downs's model assumes an availability of information as it would be in a decentralized market, not a society in any sense planned.

This thesis w ill criticize this assumption based on the following propositions^ 23

1)The rationality assumption is based on an information structure with a high degree of decentralization. Few would argue that individuals are actually rational (in the theoretical sense) or that they possess perfect in­ formation. Downs assumes that individuals may be off a bit in their voting decisions, but that the system as a whole will average out to rationality by a law of large numbers. It is argued here that some biases in the decision-making may not be random, but may be instead systematic.

2) "his thesis doesn't question the ethical assertion that preferences are not subject to questions of rationality. But, how an individual sees the options open to him may alter his choices. He may prefer A to B, in which case he chooses A . But, if there is an option C which he prefers to both, but of which he is unaware, then is his choice of A rational in the context of Downs? The relevant question is which system provides the most efficient disseminator of this information?

3) Downs doesn't considers strategic introduction of information biases into a polity. Here it is argued that certain institutional structures may foster such biases by creating monopolies and oligopolies of information.

By these terms, to be explored more fully later, it is meant that particular information is held only by one or a few agents and that these agents may be able to exact some profit from this monopoly.

The critique which follows w ill cover these and other arguments in d e tail. First, a model of individual choice w ill be presented assuming that individual choice is not deterministic but is partly the result of a probability 24 distribution based on the information structure of the polity. This model is compared with Downs's assumption of individual rationality.

Secondly, it is argued that competitive processes are required to insure that, on average, an individual w ill make rational choices, information must be available in a way that he is as likely to vary in one direction from the truth as another in his perceptions. !t is argued that a more specialized and technological society will be more likely to systematically bias individuals' perceptions.

"hirdly, the sources of individual bias will be divided into two types— those resulting from biases in available information and those resulting from biases in cognitive processes. Examples of both w ill be given.

Fourth, the cumulative effects of of individual biases on the polity as a whole will be considered. A society of individuals with different tastes and preferences w ill be considered in this context, "his section w ill focus on

Downs's use of Hotelling's spatial competition model.

Finally, it w ill be argued that monopoly of information is not necessary to precipitate these effects. The questions raised in the thesis w ill be related to economic models of oligopoly. 25

Notes to Chapter 2

1 . The reader unfamiliar with the terminology of statistical inference

is referred to any introductory text. One is Judith D. Handel, Intro­

ductory Statistics for Sociology (Englewood C liffs, N .J .: Prentice-Hall,

Inc., 1978).

2. Milton Friedman, "The Methodology of Positive Economics,"

Essays in Positive Economics (Chicago: University of Chicago Press,

1953).

3 . John Kenneth G albraith, The Affluent Society (Boston: Houghton

Mifflin Co., 1958), ch. 15.

4. F. A. Hayek, "The Use of Knowledge in Society," American

Economic Review 35 (September, 1945):518-530. Chapter 3

Uncertainty and the Rational Individual

This section relaxes the deterministic assumption of individual rationality, replacing it with a probability distribution. Now, even with a fixed set of preferences, an individual might be led to make a different choice, depending on which information he receives, and how he interprets it. The individual's preference probability distribution is derived and it is compared with Downs's deterministic rational individual.

Downs lists five of Arrow's assumptions about the rational individual.2

They are: "(1) He can always make a decision when confronted with a range of alternatives; (2) He ranks all the alternatives facing him in order of his preference in such a way that each is either preferred to, indifferent to, or inferior to each other; (3) His preference ranking is transitive; (4) He always chooses from among the possible alternatives that which ranks highest in his preference ordering; and (5) He always makes the same decision each time he is confronted with the same alternatives. All rational decision-makers in our model — including political parties, interest groups, and government— exhibit the same qualities. "

"■"his thesis diverges from the last of the five assumptions Downs makes.

It is different because of the information problem. That is, even faced with the same information, cognitive limitations can lead the individual to different

26 choices. The reason for this is demonstrated graphically in Figures 1 and 2.

Figure 1 shows the standard curves used in indifference analysis and a transformation curve representing the productive capabilities of a polity. Here a two-dimensional figure is employed, but the analysis is no less valid for n dimensions. X and y , the two axes, represent two items of public policy.

A frequently used example is that o f "guns and butter." Let x represent guns and y butter. The transformation curve, which is the one concave to the origin, represents the limiting combinations of guns and butter available to society. At any point on the curve, all resources are being employed for use in making guns and butter. Any point within the curve represents a possibility, but one in v/hich resources are not all being used, or are being used inefficiently. Any point on the outside of the curve represents a combina­ tion impossible for society to produce because Figure 1 of insufficient resources. P(x) The indifference curves represent the preferred combinations of guns and butter for individual i. A ll points on are preferred Figure 2 *R to all points on Uq , and all points on are preferred to all points on Uj and so forth. There is an indifference curve passing through each point on the graph.

Empirical evidence suggests convex indifference curves and a concave 28 transformation curve. Some resources are better suited for the production of guns and some for butter. !t is assumed that resources are utilized where they are most productive. Presumably, the previous increment of resources devoted to the production of butter w ill be at least as productive as the next increment. Hence the concave transformation curve. Similarly, commodities seem to decline in marginal value for consumers as they become increasingly satisfied with their holdings. Hence, there are convex utility curves.

Given these curves, the individual in Figure 1 would, if rational, choose point R because this is the single combination of guns and butter possible at his level.

Figure 2 shows individual i's probability distribution for x alone.

Since this is a deterministic model and all of Downs's assumptions are implicitly accepted, the individual will always choose the level of guns found in bundle R. In Figure 2, the x-axis represents the level of guns, and the y-axis represents the probability of choosing any given level of guns. In this case, there is a one hundred percent chance of choosing level R and a zero percent chance of choosing any other level. Translat­ ing this into political terms, we would expect individual i to support a party endorsing combination R and to vote against a party endorsing any other combination.

This analysis can also be extended to other pairings of public goods.

For instance, the axes may represent production versus pollution control or 29 education versus defense. It can represent different policies on allocating the costs of goods policies. This formulation can also be extended to discrete functions, such as yes or no questions , but that w ill not be done here. The analysis is essentially the same, but the mathematics is a good deal more complex.

The introduction of uncertainty into the individual's decision-making, though, transforms the certainty of selecting point R into a distribution of decision probabilities more complex than that in Figure 2. The information the individual needs to choose his optimum point is not readily available or readily discernible. A later section of the thesis will deal with the specific ways in which the information can be flawed, but here only the distribution itself is of concern.

^he problem can be stated as follows: Out of a mass of information far beyond the cognitive limitations of any individual , a choice must be made. Information is filtered by a set of random and strategically initiated processes and the individual cannot possibly know which process w ill most efficiently lead him to his optimal utility point. Depending on which information is received and which is utilized, the individual , even with fixed tastes and values, w ill probably not judge accurately the transformation curve representing the society's available choices. In effect, a nearly infinite set of "phantom" transformation curves can be derived from the information available, and for each possible curve , there is an optimal point regarding

3 the individual's indifference map# The set of all these points forms a distribution of possible choices which may be represented in a manner 30 similar to the simple diagram in Figure 2. Technically/ Arrow's fifth condition is still true, but only under improbable circumstances.

If the individual perceives the same transformation curve on two occa­ sions, his values w ill lead him to choose the same optimum in both cases.

However, the likelihood of the same information reaching him ontwo occa­ sions, and the likelihood that he w ill Y interpret it in precisely the same manner on two occasions is remote. Figures 3 and

4 demonstrate this assertion. In Figure 3, the indifference curves of an individual | are represented . The true set of possibili­ ties for society is represented by the dark Figure 3 transformation curve. The optimum the in-3 dividual chooses is again point R. But, there are a number of phantom transfor­ Figure 4 mation curves represented as w e ll. These are seen as the lighter curves concave to the origin. Each of these results from flawed information reaching j or misperceptions on his part. Each of these curves produces a phantom optimum represented by S, T, and V . At

5 and T,the individual is led to underestimate the capabilities of society.

Hence, he will accept the position of a party which promises too little.

On the other hand, at point V he overestimates the powers of the govern­ ment and may be persuaded to vote against any incumbent because no party 31 can ever live up to his expectations.

These three phantom curves are merely representative of a vast number of possible curves. For a better idea of this, Figure 3 also has a large

number of points distributed throughout. Each of these shows the tangency of yet another phantom transformation curve and one of his indifference

curves. Figure 4 shows one possible probability' distribution regarding Policy x. In this particular diagram, the mode falls at the point of rational choice,

there is no reason a priori for believing that this will be so. In fact, it will be shown that under certain condi­ 1 P(x) tions, it will not.

Downs explicitly assumes that the information problem is one of costs; increased expenditures on in­ formation or reduced costs will con­ sistently improve an individual's 0 Figure 5 probability of choosing approximately what he would choose acting rationally under perfect information.

Figure 5 represents information which provides a consistent estimator of the truth for individual k. As information expenditures increase (or costs decrease) the variance of the individual's probability distribution decreases.

The distribution consistently collapses around the truth. In the lim it, we have a situation as in Figure 2, where the distribution is a mass point. 32

Downs recognizes the limits of knowledge in the uncertain nature of

future events, but otherwise he asserts that “most uncertainty is removable through the acquisition of information, if a sufficient quantity of data is available." He sees information procurement as a process of utilizing scarce resources. In his model, voters reduce information costs by designating certain agents (reporters) within the division of labor to accumulate informa­ tion for them. The citizen's chief problem is choosing the proper reporters.

The individual scans competing information (e .g . from competing newspapers) and develops a system of checking the similarity of his views with the reporting in particular publications. On the basis of the quality of past reporting, ha makes decisions concerning which publication he w ill read.

Downs's citizens strive , according to these rules, to reduce the costs of producing information, a process analogous to increasing the efficiency of a statistical estimator.He describes a stream of "free" ( i.e . costly only in time) information offered by political parties, professional publishers, interest groups, and other private citizens as well as from production and consump-

5 tion decisions. From these sources, an information-gathering mechanism closely replicating his own set of values is established. Importantly, this system is alleged to have "sufficient internal plurality so that its parts can be used as checks upon each other's accuracy and deviation from his own

6 selection principles." This is tantamount to assuming an "invisible hand" for data-gathering— a set of counteracting powers which lead the individual 33 toward a rational decision.

This assumption ignores the possibility of a monopoly of information.

One source may manipulate all the data streaming to the reporters . Downs only briefly mentions the biases inherent in what he terms "subsidized" in­ formation, such as advertising. He assumes that the division of labor and pluralism have powers those systems might not possess. Those powers are the supposed tendencies for the system to provide relatively unbiased information from specialists in the division of labor. Downs explicitly assumes that such checks and balances exist in the information system of a polity. He asserts that the personal reputations of reporters w ill lead to establishing measures

7 of reliab ility. Specialization, to a great extent, can make this a very fallible measure .

Chief officials of institutions, for example, may have information known to no others. The information may be of a complex enough nature that it takes a lifetime ^o understand. Opinions of the official's peers may not provide anyone else with a judge of the quality of materials he dispenses because it is not in their interests to provide this information. Reputations in complex organizations can come not only from quality of work but also from ability to avoid critical evaluations. It is in ths self-interest of the executive to give away information which helps him or his organization. It is not in his interest to give out damaging information about his organization.

Yet there may be no check to which reporters may turn. There may be no one else in the world possessing the information which can more accurately 34 depict society's transformation curve. Such a bottleneck of information will not allow reporters to increase the quality of the information by increased

g expenditures. The more that is purchased, the more it w ill be biased toward the institution's viewpoint.

Downs's assumption can be represented by Figure 6 . The random distri­ bution of information will automatically collapse around the truth and the individual's choice will tend toward his rational choice as he collects more information. In the diagram,

I * and I ' * represent biased sources whose competition tends to guide the individual to rational choice. If one gains, the other loses, so vigorous Figure 6 rivalry occurs in which the sources demonstrate the weak points in each other's reporting. From this, the truth can be sorted.

In summary, in this chapter, it has been shown that the information problem for the individual can be stated in terms of statistical inference.

Given the rational individuality assumption, his decision probability function is a mass point . Relaxing this assumption, his decision possibilities are dis­ tributed as a function of the level of a particular policy and depend on the quality of information he receives. Information problems causing variance in his probability function may originate with the data he receives or with his own cognitive processes. Downs assumes away these problems 35 based on further assumptions that rivalry exists between information reporters.

They may in fact derive their information from some central source, leading him away from rational decision-making. 36

Notes to Chapter 3

1. This model is deterministic in the sense that any time the

individual faces the same situation, he will arrive at the same solution.

This is fairly typical of a number of economic models.

2 . Downs, p. 6 . See Arrow, chs. 1 and 2 for a fuller description.

3. “Phantom1' is used here to describe what an individual might

perceive as society's transformation curve, given particular circumstances

and a particular information structure. It is not the same as the true

transformation curve. There are a near-infinite number of the former,

only one of the latter.

4. Ibid., p. 77.

5. Ibid., pp. 221-225.

6 . Downs, p. 218.

7. Ibid., p. 231.

8 . "Bottleneck" refers figuratively to a stage in the path of the

information flow at which the absence of competitive forces allows the

individual transmitting the data at that point to have some control over

which information is disseminated and which is not. Chapter 4

Competition and Information Skewing

!n this chapter, competition between information sources is defined and

discussed in some d eta il. An information source in this context is the ultimate

source of data, such as the developer of a particular technology, or a gov­

ernment agency overseeing a technologically defined sector of the economy,

or any other ultimate producer of information. The definition of competition

employed here Is analogous to that in the economic definition of a competi­

tive market. Here it is information, rather than a physical resource , which

is the scarce resource in question.

It is argued here that if information sources in a sector of interest are few in number or monopolized, they w ill tend to collect a form of economic rents from those who have use of the information. This will include a discussion of those types of situations where information monopoly or oligopoly might occur. It is based on Tibor Scitovsky's definitions of the

informed and uninformed markets.

Scitovsky compares the perfectly competitive economic market with the market characterized by a breakdown of competitive forces. The former m axi-

2 mizes the utility of society's individuals and attains a Pareto optimum.

No one's welfare can be increased without decreasing someone else's. "his

37 38 happens through the action of competitive forces— Adam Smith's "invisible hand" — by which greed and mistrust of people paradoxically lead society

3 to its greatest attainable good.

The monopolistic market is characterized by the "exploitation" of those having to purchase from the monopolist. The result is fewer goods and higher prices . Here it is argued that an information source should be expected to exploit his advantage, and it is considered why he w ill be able to do so. One important note: it is not inconsistent here to assume that an information will be expected to act rationally when it is argued that the ine* dividual voter will not. Perhaps the problem is definitional. The rationality of an information source or individual is considered bounded by the informa­ tion he has. ""here is no assumption , as is implicit in economic theory, that the market will find the rational choice, even if no one in the marketplace does. Here is the heart of the thesis: The voter w ill not tend in general toward rationality in the traditional sense because the the information on which his decisions depend w ill be filtered through a very few sources in a given area of interest. The information source, however, will have a wide variety of individuals seeking his information. Thus he has an efficient, consistent estimator of the truth— the type of estimator the individual has lost, “his section will explain why this is so.

Scitovsky lists several market characteristics favorable to competition.5

They include a competitive spirit, large numbers of producers, similarity in relative strength, changing membership, and freedom of entry to and exit 39

from the market. "rhe competitive spirit is defined as an absence of coopera­ tive spirit between the actors in the market. The actors do not act in collu­ sion to manipulate their output as a collective monopoly or cartel. Like

Adam Smith's mistrustful entrepreneurs, Scitovsky's competitors find collusion

impossible because each suspects that the others w ill break the agreement.

Each moves to be the first to break the agreement, so greed draws the market price down to its equilibrium point. No judgment is made concern­

ing the virtue of the entrepreneurs; it is simply an observation on the na­ ture of competitive markets.

Scitovsky sees the other factors as institutional guarantors of competi- tion. Large numbers of actors make collusive agreements less possible be­ cause the costs of enforcing and arranging such agreements increase geo­ metrically as the number of actors increases algebraically. A reasonable similarity in size insures that no actor is strong enough to enforce agree­ ments on would-be competitors single-handedly. Changing membership in the market is said to increase competition because collusive agreements can be destroyed by the entry of a new competitor. Abive all, collusive agree­ ments require the stability of institutions, and changing membership destroys that stability. _rhus, barriers to entry are essential to the maintenance of collusive agreements.

Consider information to be a scarce commodity. Instead of collusive agreements manipulating the production and output of goods, it is the out­ put of information that is being controlled to the advantage of its initial holders. The reporters described in Downs's model do not gather information 40

from some great random pool, which would insure certain statistical properties,

nor from an oracle who speaks only the truth. Data must be secured from

individuals and from organizations (firms, unions, bureaus, etc. ). The report­

er trying to get information on the production of wheat is more or less

guaranteed complete data; there are enough information sources to make

that market competitive. Similarly, reporters can inform the public reason­

ably well on items like road repair bids. There are enough sources of informa­

tion in that market to enable publishers to gather information comprehensively.

The reason is that probabilities dictate that it will be in some actor's interest

to divulge almost any bit of information available. This is demonstrated

effectively in the neoclassical economic model.

On the other hand, when information sources are few it can be expec­

ted that some manipulation will occur, just as it can be expected that where

few producers of a good exist, they w ill be exploit to exploit this advantage

over consumers. An example can be found in recent controversies concerning

the long-term effects of some chemicals. Firms have withheld information

from the government and from consumers and even from their own workers

7 because of profit motives. Only the individual firms held the information

showing the dangers of their products, so they were information monopolists.

A particular individual in society might prefer to allow a small amount of

chemical dumping in exchange for the benefits of the product if he were

fully informed. But, because the company offers him information regarding the benefits but not the true costs in terms of environmental and health effects, he votes to allow a greater amount of dumping. In this way, the firm is reaping a monopoly profit from its information advantage. Here profit is not derived from any monopoly on a physical resource.

Figure 7 utilizes the now-familiar probability distribution to demon­ strate this point graphically. Again,

R represents the level of x (here p w the amount of chemicals to be dumped ) he would choose under perfect information, “ he first probability distribution represents his initial decision function, show­ ing a high degree of uncertainty on Figure 7 his part. At this point, he is not very knowledgeable on the subject of chemical dumping.

The second probability distribution represents his curve after he has gathered more information . However, at the level of complexity he has now sought, much of the information he desires can only come from the firm itself. Therefore, his distribution begins to skew toward the position I taken by the firm, which naturally wishes to dump a great deal of chemical

“he third distribution represents the individual's function after he has read a great deal on the subject. However, most of the later data on which he based his choice came from the firm so it was strategically filtered to bias it toward the firm's position. Because he has essentially been re­ 42 ceiving propaganda, his position is biased toward the firm's position. Thus, no conceivable amount of information expenditure will lead him to a rational decision. If his funds were unlimited, he could set up his own lab­ oratory and run his own tests, but that is not a feasible option. The report­ ers on whom he relies for information are now inconsistent estimators of the truth.

The next task is to categorize those types of information markets which should tend to enable reporters to report consistently and those which should produce increasingly biased information as more information is gathered. For this, we return to Scitovsky.

He describes a dichotomy (or continuum) between an "informed market" and an'Uninformed market." These are defined as follows:

The informed market is a market in which the average buyer knows enough about the quality of the goods and services offered to ap­ praise them on their own merits without relying on trade-marks, ad­ vertisements, or the reputation of the producers or s e lle rs ...In general one might say that the market for any good whose appraisal requires little or no technical, chemical, medical, or other specialized knowledge, or requires knowledge that is quickly and easily acquired, is an informed market.8

A market is uninformed when the average buyer in the market has an incomplete idea of the nature of the goods or services he buys, and judges their quality not by his own standards, but on the basis of advertising and indexes of quality. By index of quality, we mean... anything by which the uninformed buyer is likely to judge quality.9

The tendency toward the unknown market w ill result from the advent of high technology, scale economies, and other factors likely to prevent the consumer from making a rational choice. Considering this concept in the government arena, the problem is as follows: An informed market is one in 43 which the voter is qualified to judge the performance of his elected officials directly or at least where reporters are able to do so and are forced to re­ veal the most accurate possible information because of competition. This might involve street repairs versus lower taxes. A relatively competitive news- gathering system in this informed market can convey rather well what the costs of repair should be. The average citizen, unable to estimate the costs himself, can nevertheless reach a close approximation in this way. "he more he reads, the more he knows.

"he uninformed market for government is illustrated by the choice among advanced military systems. The voter is unable to judge by any standards of his own whether one system is better than any other. He cannot, acting alone, determine how much must or should be spent on defense.10 He must depend on information gathered by others, some of whom are acting under a cloak of officially sanctioned secrecy, and many of whom have an economic or political stake in the outcome. Typically, the reports w ill reach him through the media. Unfortunately, there are bottlenecks throughout this network of news-gathering. Members of Congress might be at the mercy of what Dwight

Eisenhower termed the military-industrial complex. There may be a consensus among defense industry and military leaders concerning which information to 11 release. Secrecy prevents other contractors from competing effectively for contracts, even in competitors are available. Where bottlenecks of informa­ tion occur, private motives might be expected to override public motives.

A military leader who is the acknowledged expert on a particular weapons 44

system may have a personal interest in seeing that system preserved, even if

more efficient alternatives are available. Perhaps patriotism or other forms of

altruism might prevail over the private motive, but here the point is that this

need not be the case. In fact, the later section on cognitive biases w ill show

how such a person might support retaining a weapons system whose obsolescence

threatens national security even if he does not mean to do so. An explanation w ill be offered.

Scitovsky observes that free competition requires freedom of entry into

1 2 occupations and professions. Under specialization, the freedom of entry to and exit from them become severely limited. Workers require lengthy training to perform their jobs. As the length of training time increases with high technology, workers feel less able to change jobs because of the necessity of starting at the bottom of an organization once more. Even in assembly-

line operations where the ultimate specialization reduces training time by breaking tasks down into the simplest operations, those in management re­ quire still greater knowledge of their industry because they must oversee so many operations. The fear of losing one's managerial job leads to a protective

1 3 mentality in complex organizations—the familiar turf defenses of bureaucracy.

The relationship between information competitiveness and specialization may be a simple arithmetic one. In a highly complex, bureaucratized society there may simply not be enough reporters to go around— not enough agents in a specialty to insure valid comparisons of quality. In the economic market­ place, the result is the replacement of valid quality comparison techniques 45 with artificial methods. This may include superficial differentiation like car style changes, non informative advertising, and the development of artificial 14 quality indexes (e .g . price). Similar characteristics can be seen in the political market. The individual voter finds himself confounded by the com­ plexity of the issues he must consider. He is unable to determine rationally the differences between political candidates and turns to superficial means of judging— rhetoric, gossip, physical appearance, candidate's fam ily, endorse­ ments, noninformative advertising, etc. Similarly, elected officials experience the same difficulties in trying to determine the relative virtues of public policy alternatives. A Congressman relies on his own set of reporting systems

1 5 *o inform him. The bureaucracy expands to provide this reporting system.

Bureaucratic theory has shown how this may lead to a profusion of information 1 6 bottlenecks and the familiar bureaucratic atrophy can result.

In this section, it has been shown that the data reaching people may be biased due to structural features in the information market. This can be considered analogous to the market for goods because in both, a scarce commodity is being distributed by producers according to perceptions of self-interest, and the structure of the market.

Scitovsky lists a number of structural features conducive to competition.

In the absence of these features, a market is susceptible to monopolistic exploitation. An information monopolist may try to deceive the consumer by strategically biasing information in a way that hides true costs and benefits of a particular action. In such cases, the individual's "rational" choice may be skewed away* from that choice he would make if perfectly informed. At the root of the monopolizing of information is the complexity brought about by technology and specialization. The less the individual is able to comprehend the facts relevant to his choices, the more likely he will be susceptible to information manipulation. !n such cases, he w ill turn to false benchmarks to aid him in judging qualitative questions. Not only is the citizen susceptible to these problems; political officials too must rely on monopolized sources of information. Notes to Chapter 4

Tibor Scitovsky, Welfare and Competition: The Economics of a

Totally Employed Economy (Chicago: Richard D 0 Irwin, In c ., 1951).

The, Pareto Optimum is considered to be a relatively weak criterion

by which to judge the efficiency of an economy. For instance, a case

in which all wealth is held by one individual is Pareto optimal because

to make anyone else better o ff, some of the wealthy individual's wealth

must be given to him, so the latter is worse o ff. For a longer intro­

ductory look at Pareto Optim a, see Jack Hirshleifer, Price Theory and

Applications (Englewood Cliffs, N .J.: Prentice-Hall, Inc., 1976),pp.

441 ff.

Smith, p. 423.

"Exploitation" here is a value-neutral expression indicating the

utilization of an advantageous market position for one's own benefit—

nothing more than maximizing personal utility in the presence of market

power.

Scitovsky, p. 321.

Ibid., p. 323.

A celebrated recent example was the kepone disaster in the James

River . See "Tragedy in HopewellrKepone Poisoning of Life Science Product

Company Employees," Time, February 2, 1976, p.. 42. 48 8. Ibid., p. 327.

9. Ibid., p. 334.

10. Downs, p. 231.

11. See Co Wright M ills, The Power Elite (New York: Oxford

University Press, 1956). for a lengthy development of this theme.

12. Scitovsky, p. 324.

13. See Samuel P. Huntington, "The Marasmus of the ICC: The

Commission, the Railroads, and the Public Interest," Yale Law

Journal 61 (April 1952): 467-509.

14. Scitovsky, p. 403.

15. Downs, p . 219.

16. See Huntington. Chapter 5

Collusion and Parallelism

The arguments up to this point have centered on those situations in_ which information affecting citizens' rational choices has been controlled by a single monopolist. It can be argued that such situations are rare, that any information is generally available to more than one source. Supposedly,

competitive forces should overcome systematic biases, but here it is argued

that they do not. Where data sources have a higher probability of rational

choice than consumers of data, it can be expected that they will manipulate

information according to self-interests. Where two or more actors have access to the same information, they can be expected to act in collusive or parallel fashion if an agreement, overt or ta cit, can be reached and enforced. The case is like an oligopolistic economic market.

Oligopoly can be called the most "political" form of economic market;

it is one in which the interplay between actors most closely resembles political bargaining. No attempt is made here to apply oligopoly models directly to political situations. They are presented only to suggest past attempts at model­

ling the actions of the few.

The political-oligopolistic nexus is implied by the identifying characteris­ tics of the latter. These center about the small number of actors able to visibly affect the market. While there may be thousands of actors, only those

49 50

few with this market power are defined as the oligopolists. There is strategic

interplay between these actors, because they are aware that the decisions of

each w ill affect the decisions of the others. They may recognize large areas

of shared interests where all maximize gains by acting in harmony. Where

they have at least partially conflicting interests, the resulting competition

is likely to decay into a rivalry of conflicting wills. Actions take on a game­

like quality with optimizing actions taking the form of moves based on expec­

tations of the responses of others in the market, a situation very different

from the classic competition.

There is a great similarity between this type of economic market and

the arena of political interplay. In the latter, the number of actors is almost always small, whether they are nations, candidates, lobbying groups, political

parties, or individuals. While there may be thousands of individuals writing

letters or fighting in armies, or participating in some way in the political

interplay, the number of primary actors whose decisions dictate the course of events is generally small. They recognize this strategic nature of their de­

cisions. Lobbyists for one side of an issue calculate the likely response of their opponents to each possible course of action. Nations calculate the

probable moves of rival nations in response to their own moves. Political campaigns are plotted as carefully as games of chess. Throughout politics, conflicts are defined by the tests of w ill and strengths and weaknesses of actors whether persons or groups. 51

Economic theories of oligopoly are concerned with the ways In which

actors come to recognize the mutuality of their interests and the strategies

they employ in arriving at agreements on serving these mutual interests.

Cartel theory considers the increasing difficulty of negotiating and enforcing

agreements between actors as their numbers increase. 2 To date, no one

theory of oligopoly is widely favored by economists, and some argue that

to develop a universal theory is not possible. The existing ones used for

empirical observations consider the rates at which firms provide goods in

the marketplace. Similarly, this chapter outlines the strategies of informa­

tion dissemination given a limited number of sources.

If a political market includes several actors with conflicting interests,

why w ill they not lead society to an optimum through their rivalry? Why won't a regulatory agency's conflict with an industry lead to a social opti­

mum? Why won't the rivalry between Republicans and Democrats lead the

individual to a rational choice? The answer lies in the weakness of what

Galbraith termed "countervailing powers," a weakness which w ill be called here "the bifurcation of the political market into competitive and coopera­ tive axes.

Consider diagrams 8 through 12. In Figure 8, there is the probability distribution for voter i on Policy x , and it is assumed that there is a great deal more information available to i than he already possesses. !n Figure

9, he has received some information from a source whose self-interest lies

in maximizing the quantity of x , and his probability function has become biased toward the direction of the information source. In Figure 10, there 52

p(x) P(x) p(x)

p(x) from Fig. 8

Figure 8 R Figure 9 R High degree of uncertainty in the New information from biased source agent's probability distribution p(x) source (I) only

p(x)

Figure 10 Countervailing power (C) added: leads to un­ biased information

p(x,y) p(x,y)

jflklX z

/ & c Is /C ' z

1 V 1_ c / R L Figure 11 ^Collusion fails on x-axis, Figure 12 Succeeds on z-axis: x decision Collusion fails on both x- unbiased, z decision biased and z-axes: both decisions unbiased 53 is a competitive force whose interest lies in minimizing x. The countervail­ ing power may be a rival political party or interest group * a regulatory agency, or any other competitive force. Rivalry between the two interests might be expected to lead the voter to a rational choice by allowing him, as in P2M , toward R. In Figure 11, though, the two sources have recognized points of mutual interest, and the market has bifurcated into two axes. Along axis x, the two are still in conflict—there is no area for collusive actions.

Here the voter receives the totality of information, so his decision should not be biased. On the z-axis (which would be perpendicular to the paper) the two sources have recognized mutual interests on which they collude or act in paraHel fashion. Along this axis, the release of information to society will be of an indeterminate nature. If the two rivals are able to reach an overt or tacit agreement, then voters w ill receive biased information.

If they are unable to agree, as *n Figure 12, where collusion fails, the two w ill be rivalrous on both axes and all information w ill be unbiased. The way the rivals will agree to collude or will fail to is indeterminate. In economic oligopoly, markets and prices may resemble either competitive or monopolistic markets or anything between. Similarly, the solution of the political oligopoly may be either polar example or anything between.

There is a wide body of literature on the failure of competitve forces.

Huntington's study of the Interstate Commerce Commission (ICC) is a good

3 example. Representing his findings in terms of the above model , the railroad industry is viewed as the information source and the ICC the counter­ vailing power. Initially, the two acted as rivals, and their conflict led 54

voters to relatively unbiased information . regarding the true costs of railroad

service. Later, the industry and the agency came to recognize mutual inter­

ests which they were able to separate from those points on which their inter­

ests could not coincide. Huntington and others have argued the existence of

a "life-cycle" for regulatory agencies. In the beginning, there is a youth­

ful sense of purpose to the agency and it vigorously pursues its stated goals.

Later, other self-interests dominate and the former rivals become allies in

some areas of policy. The rivalry changes to a symbiotic relationship with

both as mutual defenders of their now coincident interests. Over tim e, the

purposes of the two have bifurcated into areas where collusion is advantageous

and those where it is ro t. The economic literature of oligopoly offers some

understanding of these processes.

Assume there are two information sources in some market. The information with which they deal is complex, and there are no other actors in the po lity able to confirm or refute their assertions. !f the two disseminate identical

information, the individual's perception of the society's transformation curve should be biased in that direction. The two sources w ill seek to bias toward their view , and their ability to do so depends on their ability to understand his preferences. If the two are unable to agree on the way to bias him, then their information w ill conflict, and the result w ill approach a more competitive market.

Follwing are some economic models of oligopoly which suggest possible results of oligopoly situations; 55

THE QUA SI -COMPETITIVE SOLUTION 5: This replicates the informa- tion quality which would exist if there were a competitive market for information, "he rivals are unable to negotiate a collusive solution, so an unbiased bank of information is provided. An example may be the day a regulatory agency opens its doors. Its interests and that of the regulated industry seem directly opposite. There is an esprit de corps among the agency's employees, and their initial desire is to provide a substitute for the missing competitive market. Though some mutuality of interests may be recognizable at this stage, the agency does not exploit if y e t.

6 THE COLLUSIO N SOLUTION : Here, the two agents have recognized the mutual interests and have begun to cooperate fully with each other, information is distributed through society as if the colluding agents were a single entity. This is a sort of joint monopoly, a cartel of information. The solution might be experienced if the two agents found they had no conflicting interests, for the existence of such conflicts provides a major obstacle to collusion, in economic theory, a major such obstacle is the difficulty in determining how the spoils of monopoly are to be divided among the partners, "hat question of division becomes a zero-sum game among the agents. The success of the agreement rests on the ability to suppress these areas of dispute beneath the overall purpose of self-interest, ^he !C C- railroad case can be cited as one in which the parties surcessfully reached a comfortable collusion.

7 THE COURNOT SOLUTION : Here, each actor maximizes his own good on the assumption that his moves w ill not affect those of his rivals. 56

This isa naive assumption, but may resemble the truth in certain political situations where the rivals simply don't understand the psyches of each other.

They are unable to collude efficiently, but recognize some mutual interests by trial and error. A case might be two ethnic groups who very slowly

realize similar interests, but only through a long series of misunderstandings of the other's intentions in each move.

THE STACKLEBERG SOLUTION : This is a particularly "political" sort of oligopoly solution. Here it is asserted that there are two distinct types of agents, "followers" and "leaders." The follower obeys the assumptions the leader makes about him and follows accordingly. The leader assumes that the follower will behave as expected, but will allow the dominance of the leader and maximize his own utility accordingly. The leader is the one who determines where the policy (in this case information dissemination) will be and the follower makes the best of that situation. With duopolists, there are four possible outcomes.* 1) Agent 1 wants to be the leader and 2 wants to be the follower; 2) 2 desires to be ihe leader and 1 the follower; 3) both wish to be leaders; and 4) both wish to be followers. Solutions 1 and 2 have determinate outcomes. The leader determines which information is disseminated, and foliwer accepts that decision and maximizes his own interests accordingly. !f both try to be followers, their behavior w ill be indeterminate and inconsistent until one chooses to be the leader. If both try to be leaders, there is another type of disequilibrium, one of warfare between the two until the dominance of one or the other is firmly established. 57

THE MARKET SHARES SOLUTION 9 : This conjectures in economics

that one rival may have as his goal maintaining his share of the market, irrespective of profit or other motives. It is assumed this is in some sense

maximizing some longer term goal than simply maximizing profit. Political theorists may inquire accordingly whether political actors seek to preserve whatever "piece of the pie" they currently have. The bureaucratic turf protection mentioned earlier may be an empirical verification of this. Other

interests of an agency seem to succumb to this long-term goal of agency perpetuation.

"HE KINKED-DEMAND-CURVE SOLUTION;1 This holds that an oligopolistic market should tend to become rigid at some price. If a rival tries to undersell, his opponents lower prices in response, and no one is better off. !f he raises his prices, no one w ill buy from him and again he w ill be no better off. For analogy, we return to the information duopolists.

A rival w ill not divulge information to voters which w ill tend to move the voter's choice farther from his own position. But, he might not divulge information which would move the voter toward his position if he expects that the rival will release information to move him back to his position, a step detrimental to both rivals. A "truce" between the rivals is expected if both know that warfare w ill result in a loss to both.

This chapter has shown several ways in which competitive forces in an information market might break down even if more than one source on a particular subject exists. The theory of oligopoly in economics provides 58 numerous models on the ways in which rivals come to recognize mutual interests, even in the presence of directly conflicting interests. Oligopoly theory, though, is ill-defined and offers no deterministic solutions. It offers only a variety of suggestions of how rivals act according to the interdependence of their actions. Oligopoly seems to share some traits with politics. All of the above-mentioned models except the cjuasi-competitive solution result in some exploitation of the information advantage to the detriment of the consumers (voters). The implication is that even bitter political rivals may still find some mutual interests to be jointly maximized at the expense of others. 59

Notes to Chapter 5

1. "Conscious parallelism" refers to the tendency of oligopolists

to behave similarly without active collusion, F. M . Scherer,

Industrial Market Structure and Economic Performance, 2nd ed.

(Chicago: Rand M cN ally College Publishing Company, 1980), pp.

514ff.

2. Ibid., p. 173.

3. See Huntington.

4 . M . H . Bernstein, "Independent Regulatory Agencies: A Perspec­

tive on Their Return," Annals of the American Academy of Political

and Social Science (March 1972): 14-26.

5 . James M . Henderson and Richard E. Quandt, Microeconomic

Theory: A Mathematical Approach (New York: McGraw-Hill Book

Company, 1980), pp. 200-201.

6 . Ib id ., pp. 201-202.

7 . Ib id ., pp. 202-205.

8 . Ib id . , pp. 205-207.

9 . Ib id ., pp. 209-210.

10. Ib id ., pp. 210-211. Chapter 6

Biases in Cognitive Processes

Up to this point, the individual's deviation from rational choice has

been assumed to result from institutional features. These have included the’

complexity of technology, the degree of labor specialization, the number

of rivals in an area of interest, and the private motivations of information

agents.

The section deals with another possible cause of deviation: the biases

in an individual's cognitive processes. These may be present for a variety

of reasons, some of which w ill be discussed in this chapter. The reasons

include the following:

1) Data regarding the future Qre missing so it is inescapable that heuristic methods must be employed in predicting probable outcomes.

2) There is more information in any area than anyone can possibly absorb.

3) There is conflicting information.

4) In a complex society, no individual can be knowledgable in more than a few areas.

This chapter will use the terminology of social psychology for its analysis. Social psychologists have hypothesized how different systems of

information can affect individual decision-making.1 Here, we consider

60 61

the cognitive processes which occur after information has reached the indi­

vidual. The/ may be thought of as a filtering mechanism he uses to reduce

his information received down to a manageable level. Following are some

of these processes and their attributes:

I fundamental attribution error: tendency to underestimate the impor­ tance of environmental factors and overestimate the importance of personali­ ties in occurrences 2)perceptual focusing: the object of focus is regarded as cause 3)advantages of self-presentation:^the perceived importance of the information source becomes an influence 4)availability: the relative ability to extract needed information becomes a determinant of the decision 5)adjustment: the tendency to alter perceptions by rules 6 Representativeness: dominance of predictive qualities over actual probability weights 7)concreteness vs. abstractness: visually perceived characteristics appear to dominate those of a more abstract nature 8)persistence of theories: false initial perceptions linger 9)congruity principle: the individual confuses his information and his source 10)balance principle: the individual searches for a schematic regularity to his beliefs 11 I I )cognitive dissonance: the individual tries to avoid allowing con­ flicting information to enter his decision process simultaneously 12

Each of the above can contribute to the biasing of information by the individual making his policy choices. For the model presented in this thesis, it is reasonable to suppose that a complex, specialized society can increase the problems making choices about optimal government.13 A society such as the United States at present is expected to present more information problems than (for example) the United States of the Eighteenth

Century.

Ross describes the fundamental attribution error as follows:

(individuals) consistently and dramatically underestimated the extent 62

to which subjects in general would yield to those situational forces which compelled obedience in Milgram's s itu a tio n ... they assumed that the particular subject's obedience reflected his distinguishing personal dispositions rather rather than the potency^^ of situational pressures and constraints acting upon all subjects.

This might affect the polity as follows: Downs assumes a level of

professional standards which force reporters to provide information bene­

fiting the individual and improving his ability to make rational choices.

However, if Ross is correct, information sources may alter what they

provide due to environmental pressures. Even a source known to be in

sympathy with one viewpoint may provide information contrary to the

interests of that side of the issue. For instance, a government official

known to be a Democrat might testify in support of a Republican measure

if he thinks that might help him retain his job. In the Milgram experiments,

subjects w illingly performed acts contrary to their moral beliefs due to

pressure from the experimenters. The information source may be overly

trusted by reporters and others when such trust is no longer deserved.

For reasons cited earlier, specialization can increase the environmental

pressures on the information source.

Por the aliened officials In a democrdcy, the implication is that actions by parties and governments w ill be widely regarded as manifesta­ tions of free will rather than involuntary bending to environmental pressures.

A concrete example is the case of an official who loses favor with the

public over issues on which he has little or no ability to choose between alternative actions. For example, some politicians' careers ended because 63 they followed the edicts of U .S . Supreme Court on civil rights matters; their demise came even though they may personally have opposed the court

1 5 rulings and may have been helpless to oppose them. There are instances in which elected officials appear to have been blamed for natural occurrences far beyond their control.1

Perceptual bias should increase in the uninformed markets described by Scitovsky. The causes of events may become more obscure as the causes and the events become more complex. !n fact, the causes and events can become less distinguishable. Social psychology describes a problem of

"perceptual focusing" in which the object of the individual's attention comes

1 7 to be regarded as the source of some action. An example is the tendency to blame an administrator for the actions of an aberrant aide or for the failure of a program over whose success he had little control.

In the society postulated by welfare economics and adopted by Downs for theoretical purposes, the free market is the source of private goods and 1 8 the government is the source of public goods. Importantly the two are considered (in the context of the models) sharply distinct. A high technology society, though, may not lend itself to such sharp delineations. A division may occur between those responsible for an occurrence and those who re­ ceive the blame. The government may be blamed for actions over which it has no control while it may escape responsibility for actions over which

1 9 it has great control.

The oil crisis of the early 1970's can be cited as a case in point.

Some hold the elected officials in office in 1974 to blame for the gasoline 64

lines, heating oil shortages, and related problems. Others blame the oil

companies, others the OPEC nations. In truth, it is difficult to disentangle

the facts from the fiction or to determine with any certainty who is to blame. If elected officials in the United States did not begin the crisis, then the voters should through some process realize this, according to the rational actor hypothesis. It is- not difficult to think of examples in which

2 0 voters erred in judgment about such matters.

Similarly, the government officials are not necessarily able to divine

rationally the truth about policy decisions. The process may go even farther as managerial specialists (in government and in the private sector) must rely on data supplied by underlings who may have their own private motives and accompanying information strategies. Ross describes the self-presentation

...im plications may be all too clear for our understanding of the social structures and of the forces that impede social change. Indi­ viduals who enjoy positions of power by accident of birth, favor­ able political treatment or even their own efforts also tend to enjoy advantages in self-presentation. Such individuals, and even their disadvantaged underlings, may greatly overestimate the extent to which the seemingly positive attribute^ 2of the powerful simply re­ flect the advantages of social control.

Indeed, this distortion in social judgment threatens to provide a particularly insidious brake upon social mobility whereby the disad­ vantaged and paperless overestimate the capabilities of the powerful, who in turn inappropriately deem their own caste well suited to the task of leadership.

The individual believes his political superiors more qualified to direct his life than is actually so. The official in government becomes additionally biased as a result of this problem. He overestimates his ability to discern the 65

transformation curve from the information he receives from his sources and

reporters. On the other hand, the expertise of those sources and reporters

leads the official similarly to overestimate those individuals' abilities. The

entire information chain becomes laden with such bottlenecks, and each has

the potential to originate, amplify, or cancel some bias.

Three heuristic problems may also bias information, especially in a

complex society: availability, adjustment, and representativeness. Availability

bias concerns the stochastic nature of the information sample which the

individual might choose as a basis for his decisions. If the totality of informa1

tion (as represented by the transformation curve) is available to him, he must

draw from it a very limited number of bits. O f course, the sampling may be

biased by the withholding of information by sources. The sampling may be

affected in other ways, like advertising, superficial information, lies, and

various misleading techniques. Each is designed to affect the quantity and

quality of information so the individual is led toward the source's view.

According to Ross, the adjustment heuristic is characterized by the

individual making judgments by first adjusting to some initial value or by

some partial computational procedure. He may anchor his views to some

prior data, right or wrong. A political case is one in which an interest group drives to win allegiance to an ideal which is initially unassailable.

Followers may adhere to this view later, even in the light of evidence

2 3 to the contrary.

It thus becomes in the interests of the source to provide favorable,

though misleading or false, information in the initial time period, because 66

it establishes what amounts to an ideological bunker. In our time , for

instance, early support for the Nixon presidency enabled him to retain a

strong core of followers even in the wake of the Watergate evidence.

Again, the more complex the issue at hand, the more likely such an

inertia of old information might be.

i The third heuristic bias, representativeness, concerns the tendency

of individuals to give too much weight to the predictive qualities of

information without considering the probability distribution. Ross presents

the following case:

I (Ross) have a friend who is a professor. He likes to write poetry, is rather shy, and is slight of stature. Which of the following is his field: (a) Chinese Studies, or (b) psychology?2h

He assumed that many would choose (a) from the qualities described.

This is despite the obvious facts that there are far more psychologists in the

United States than professors of Chinese Studies and Ross, as a psychologist, would be more likely to be personally acquainted with someone in his own

profession. In statistical terms, he is arguing that where a Bayesian model

is available, people irrationally ignore the prior probabilities?5

Abelson describes the same heuristic is somewhat different terms.26

He asks the reader whether there are more words in English with the letter

"k" in the first position or the th ird . Most say first, seemingly because they are trained to identify words by the first letter, not the third. Actually,

he reveals, there are three times as many words with the "k" in the third place. The relation between these two definitions lies in the 67 particular details most readily accessible to the thought processes. In one case, initial letters are more accessible than thrid letters. In the other, cultural stereotypes are more accessible than demographic statistics.

This heuristic could be described as a numerical version of the availability heuristic.

"the political manifestation of this can be seen in advertising jand demagoguery feeding on biases rather than statistical facts.

Ross describes a related tendency which skews the person's decisions away from rational baselines. Someone might be more likely to listen to the advice of a friend than that of a consumer publication when purchasing an automobile. The journal would more likely provide information of an accurate nature, but like the initial letter or the stereotype, the friend is somehow more comprehensible. Technological complexity offers a particularly troublesome fectuue: if this heuristic bias is believed. Highly complex innovations may require long periods of evaluation such that their true costs and benefits are not apparent until long after action is taken. If costs lag far behind the benefits, the former may seem more abstract, causing non-optimal de­ cisions. Jobs in the present may seem to outweigh the costs of pollution to be borne later. The prospect of unlimited energy at present may outweigh the expected costs of nuclear energy (externalities, etc.). Present benefits of a drug (or of cigarettes or of a food additive) may seem to outweigh the costs, which seem abstract at present. Even Nineteenth Century liberals like

John Stuart M ill believed in limiting the ability to make certain contracts over long periods of tim e. He opposed legalizing indentured servitude on the 68

grounds that the individual, even a rational individual would tend to

discount the future at too high a ra te .27

Ross describes "distortion" and "autonomy" as the perseverance mech­

anisms causing information flawed as above to linger in its biased fashion.28

Distortion occurs where weights are improperly assigned to data because of

cognitive failure. Autonomy is the characteristic which separates the biased

information from its source. The social scientist must ask whether long run

competitive factors will tend to equalize entities in the polity or whether

autonomous characterstics w ill lead to greater disparity of power in society.

!f relative power tends to increase, then complex systems of complex informa­

tion will tend to lead the polity away from a normative goal of equality or

equity. If it is the former and power tends to equalize in the long run, the question for the social scientist concerns the length of the long run. If the

lag between benefits and costs stretches out over generations, then the polity

may not have sufficient competitive forces to lead the individual to a

rational choice.

Here, we have touched briefly on a few of the ways biases may appear as a result of cognitive limitations. Social psychology names other biases, but this chapter has at least touched the surface of some of the more important hypotheses about cognitive biases. The conclusion drawn is that a major obstacle to rational decision-making lies in the limitations on the volume of data anyone can consume and the makeshift methods used to sor' out what has been received. The political implications w ill be dealt with more fully in the next chapter, but here is its essence: If the individual 69

has a limited number of sources from which to get information on a

particular subject, his decision-making will be subject to great variance

because competitive forces are not present. On the other hand, if the

information source has many individuals desiring his information, then their competition for the data is likely to provide him with with a good estimator of the value of his information. Thus the source will approximate

rational choice while those seeking his data will not. Individuals are susceptible susceptible to monopolization by information sources. The

monopolist can exert his market power by withholding information or by estimating the preferences and perceptions of individuals. If he can calcu­

late the ways in which individuals bias the information they receive, his advantage becomes greater. This is one explanation of polling and market­

ing analysis. xhe source is at an advantage because in a particular area of interest he deals with a large number of people while the purchaser choosing among competitors has only a small number to choose from (in statistical sampling terms). The voter has to get information from the sources while they do not need his information specifically; he is only necessary in the sense of being part of a collective body of consumers.

The result is a distinct advantage for the monopolist of information.

In this and preceding chapters, we have tried to show how a single individual may be led away from a rational decision by weaknesses in the system of information upon which he relies. It has been assumed that the individual has a well-defined set of preferences, represented by an indifference map. The variance in his decision-making has been blamed 70 on his perceptions about society's transformation curve—a geometric repre­ sentation of the set of all possible policy combinations available to the polity. Biases in his information gathering system can be divided into two types: those resulting from manipulation of the information reaching him, and those resulting from biasing patterns of cognitive processes. Competition between information sources reduces the variance of the individual's decision from what he would choose under perfect information. Lack of competition increases the variance because he has less basis for comparison and more biased information. This lack of competition arises from an increasing division of labor, specialization of tasks, increased education length needed for particular duties, complex organization ,and technology. Even where more than one source exists, there may be exploitation o f the voter due to collusion and parallelism. The theory of oligopoly provides a guide to under­ standing those problems.

Biases in the individual's decision-making can also result from the limitations of his cognitive processes. Social psychologists have hypothesized a number of such biases. Many could be useful in a theory of democracy.

Here, these processes have only been briefly considered. Cognitive processes can be represented by statistical models, and in fact, a major contribution of mathematical information theory has been the reshaping of the science of behavior. The problems, as they relate to the political model, may be stated as follows: the mind, like the statistician, seeks to learn the most from the least information necessary. This is done by developing a number of means of analyzing data. Over the life of the person, he seeks to find 71 the most efficient possible system. As in statistics, the same estimators are not always equally valid. We would argue here that some cognitive processes, developed over centuries, have become antiquated with the explosion of information in this century. Whether or not information processing has advanced as quickly as the need for it is subject to question.

N ext, the thesis is concluded with an analysis of the systematic effects of these biases on the polity as a whole. 72

Note to Chapter 6

1. A number of research areas are outlined in Leonard Berkowitz, ed.

Advances in Experimental Social Psychology vol. 10 (New York:

Anderson Press, 1977).

2. Lee Ross, "The Intuitive Psychologist and His Shortcomings: Dis­

tortions in the Attribution Process, 11 in Advances in Experimental

Social Psychology, pp. 173-220; E.E. Jones and R .E. Nisbett, "The

Actor and the Observer: Divergent Perceptions of the Causes of Be­

havior, " in E.E. Jones et al.,eds., Attribution Perceiving the Causes

of Behavior (Morristown, N .J .: General Learning Press, 1971); and

H .H. Kelley, "Attribution in Social Interaction," in Attribution .‘Per­

ceiving.

3 . Ross, p. 183.

4. Ibid., p. 184.

5 . Ibid, pp. 19 8 ff.; and A . Tversky and D . Kahneman, "Judgment

Under Uncertainty: Heuristics and Biases," Science 185 (7974), pp.

1124-1131.

6 . Ross, pp. 79 8 ff.; and Tversky and Kahneman, pp. 17 24-1137 .

7 . Ross, pp. 200ff.; D. Kahneman and A . Tversky, "Subjective

Probability: A Judgment of Representativeness," Cognitive Psychology 3

(1972), pp. 430-454; and D . Kahneman and A . Tversky, "On the Psy­ 73

chology of Prediction,'1 Psychological Review80 (1973), pp. 237-251.

8. Ross, pp. 200ff.; and R. E. Nisbett, E. Borgida, R. Crandell,

and H . Reed, "Popular Induction: Information Not Always Informative,"

in J. Carroll and J. Payne, eds. Cognitive and Social Behavior (Potomac,

M d .: Laurence Erlbaum Associates, 1976).

9-.- Ross, p. 208.

10. R. P. Abelson, "Social Psychology's Rational M an," in G .W .

Mortimore and S. I. Benn, eds., The Concept of Rationality in the

Social Sciences (London: Routledge and Keegan Paul, 1974), pp. 5 8 -89.

11. Ibid.

12. Ross, p. 186.

13. Downs, p. 230.

14. Ross, p. 184; and S.Milgram, "Behavioral Study of Obedience,"

Journal of Abnormal and Social Psychology 67 (1963), pp. 371-378.

15. For exam ple, see Francis M . Wilhoit, The Politics ofMassive

Resistance (N ew York: George Braziller, 1973), p. 159.

16. See T. Morgenthau and F. M aier, "The Politics of Snow," News­

week, February 19, 1979, p. 34; and J. R. Coyne, Jr., "Snow Job:

The Politics of Anger," National Review, April 27, 1979, pp. 53 2-3 .

17. Ross, p. 193.

18. Downs, p. 20.

19. Libertarians would consider this the usual case. See, for example,

Milton Friedman, Capitalism and Freedom (Chicago: University of Chi­

cago Press, 1962), pp. 196-202. 74

20. Just which election falls into this category is a matter of personal

choice, but any campaign in which a candidate lost through a "smear"

or false association can be cited.

21 . Abe Ison, p. 57.

22. Ibid.

23; Ross, pr. 198.

24. Ibid., p. 199.

25. A Bayesian model is one in which prior probabilities drawn from

past data are used in predicting the future.

26. Abe Ison, p. 58.

27. John Stuart M ill, On Liberty, ed. Currin V . Shields (New York:

The Bobbs-Merrill Company, Inc., 1956), p. 125.

28. Ross, p. 206. Chapter 7

Relation to the Spatial Competition Model

Thus far, discussion has largely dealt with the effects of information problems on a single individual. Here we consider the cumulative effects on society as a whole. Again, the basis for discussion is the single-issue policy continuum for X . This can again represent one issue in isolation or Downs's

ideological spectrum. Either uses the same Hotelling model.

Figure 13 shows a population distribution in which n - 1 individuals

lie in fixed positions along the continuum. The x-axis represents the policy choice while the y-axis represents the number of individuals at that point.

To simplify the discussion for now, it is assumed that there is a two-party system and that everyone votes. The policy level chosen is the median of this distribution. For this reason, the particular shape of the distribution is not a concern.

If an n-th individual is added to the population, the position of the median will shift slightly, unless n is located at that point exactly. In a large society, his effect on the median is slight, but not zero. He has an infinitesimal but real effect on the policies chosen by the parties. Assume that the original n - 1 people have fixed views; n is the only question mark for the parties. Figure 14 shows two possible probability distributions for n's choice. One is a normal distribution around the point he would

75 D(x)

D(x) from Fig. ^3 D(x) D(x

Shift of median

x Figure 13

P(x) Shift of median

Figure 15 Biasing of many individuals in the population

Figure 14 Change in population distribution(D(x) ) resulting in change in one agent's probability distribution (p(x) ) D(x)-

D(x) D(x) D(x) from Fig. ”*6

"doves" hawks Figure 16 Figure 17 Bimodal population distribution Ineffective competition from doves

D(x)

D(x) from Fig. 16

Figure 18 Population polarized by competition 77

choose under perfect information. The second distribution shows a distribution biased in the direction of an information source upon whom n's decision depends. Perhaps the information source investigated individual n and

calculated an information strategy most likely to skew his distribution in this direction. Perhaps they purchased his name from an ideologically oriented publication and figured that he was of that persuasion. Then information. . was given to influence someone with that viewpoint. The biases described

in the previous chapters have been developed by marketing analysts, perhaps.

N may still choose his rational point; the point is still within his distribution.

But, in the second distribution, the source has moved to decrease that probability. If we assume that the parties have perfect information (by polling or other technique) then both w ill scurry to the new median point. The median of society could be exactly where it was before, but there is a high degree of probability that it will be slightly closer to the position of the information source.

Several additional diagrams illustrate the cumulative effects of the information source affecting the distributions of many individuals in the way described above. In Figure 15, many individuals have been led by the source to probability distributions like n's in the previous diagram. Now, instead of an infinitesimal shift, there is a major one. If there is a large number of individuals, the population distribution should resemble a vertical summation of all individual probability distributions. This makes possible a variety of different solutions. It is possible (though improbable) that each individual w ill select the rightmost point in his distribution, in which case the society's 78 median (and government choice) will be far to the right. Now, the choice of society also becomes a probability distribution which is a function of all the individual curves.

The population distribution need not be normal or any other common distribution. Figure 16 shows a bimodal distribution. Consider the issue of defense spending: the two modes can be termed "hawks" and "doves" with a continuum of shadings, represented here on the right and left, respectively.

Assume there is a strong dominance of information disseminated by the hawks.

Many probability curves shift to the right, swelling the hawk side of the spectrum as in Figure 17. Here, the doves are portrayed as responding in­ effectively, so one mode shrinks and the other grows. The distribution and hence the median shifts to the right. Figure 18 shows an alternative possibili­ ty . ^he hawk mode swells as before, but the doves respond more effectively, so that mode grows, too. This represents a polarizing of the electorate.

This may represent a reaction against the information given by the m ilitary.

The leftward swelling may also represent what Robert Dahl called "slack re­ sources." 1 This refers to the phenomenon of politically inactive people becoming active when their viewpoint is threatened by opposing political forces.

Downs does not explicitly recognize this skewing of information, but some normative theorists have. Some others assume, as Downs does, that forces in the democratic polity tend to equalize in the long run.3

By pressures like slack resources, the polity is kept toward its true median.

This argument broke down for the individual, and it can do the same for 79 the polity as a whole if:

1) Society's true possibilities (the transformation curve) remains hidden from the electorate because of information manipulation, or

2) Even awareness of the existence of desired information by opposing groups may not counteract fully if one side is more successful than the other in disseminating information.

Hawks may shift the curve to the right because for some reason the doves may be less effective at disseminating facts. Though the latter may know the information favorable to their view they are unable to speak loudly enough, in a figurative sense.

Galbraith discussed this at length in American Capitalism and in other

if later works, !n that book, he postulated that there would be areas of policy in which competition would be insufficient to prevent a superiority of power on one side or another. He suggested the state establishment of "counter­ vailing powers"— institutions designed to serve in a capacity like regulatory agencies. In Economics and the Public Purpose he recommended the establish­ ment of price-setting mechanisms within the government to serve as competi-

5 tion where none would form spontaneously.

This view has been criticized as merely a restatement of support for increased regulatory a ctivity. This activity has been criticized on questions of efficiency. Figures 19 and 20 demonstrate tendencies of regulatory agencies. In the former, the information source at I has successfully biased the population distribution toward its opinion. !h the latter, a regulatory agency has been established as a countervailing power. The agency is at a 80

disadvantage compared with the information source. It is not an equal

partner in this market. Scitovsky cited relatively equivalent power as a

g necessary component of competition. The agency's function is basically

negative, unlike the controlled organization.

The agency may be founded on a purpose to which its employees

may be dedicated. However, effectiveness may be short-lived. The thrust

of the writings of Huntington and others is that the life of a successful

agency is usually fairly brief. Before too many years past, the bifurcation

described earlier occurs, and the agency ceases to carry out its assigned

purpose.

In this chapter, the information problems facing the individual have

been generalized to a polity of many individuals. The thrust of the argument

has been that individuals erring in their choices need not "average out" to

a rational choice as Downs seems to suggest w ill happen.

In the following summary, the results of this thesis w ill be reviewed.

D(x) D_(x) from Fig. 19~vD(x)

x

Figure 19 Figure 20 Lack of competition biases Regulatory agency reduces but population distribution does not eliminate bias Notes to Chapter 7

See the discussion of actual versus potential political resources

In Robert Dahl, Who Governs? (New Haven: Yale University Press,

I961),"ch. 24.

Recall the discussion on Chapter 6 on cognitive biases. Also, the

Institutional School in economics has written extensively on this supposed tendency. See Galbraith, The Affluent Society, chs. 9, 10, 11; and

John Kenneth G albraith, The New Industrial State (Boston: Houghton

Mifflin Co., 1967), chs. 18, 19, 20.

Downs, pp. 8 -1 1 .

John Kenneth G albraith, American Capitalism (Boston: Houghton

Mifflin Co., 1952).

John Kenneth G albraith, Economics and the Public Purpose (Boston:

Houghton M ifflin C o ., 1973).

Scitovsky, p. 321. Chapter 8

Summary

This thesis has taken exception with the assumption of rationality as an approximation for collective behavior in a polity. The reason is that the possible existence of biases in the way people absorb information may cause their choices to deviate severely from what they would choose in a state of perfect information. It is argued that these biases may be systematic and thus not "average out" as the rational actor model would imply. Further, it is argued that these biases might occur most severely in the presence of a high degree of specialization, dependence upon expert opinion for information, and lengthy time horizons for the effects of choices.

The thesis has been presented in the form of a critique of Anthony

Downs's An Economic Theory of Democracy. This book, considered a seminal work in the field of positive political theory, was outlined Chapter 1 .

The questions considered in the thesis and the methods employed in the critique are outlined in Chapter 2. The critique begins with an explanation of the significance of the rational actor in theory. Chapter 3 considers the construct and adds a particular form of uncertainty to the model. This is done to enable analysis of situations in which the individual deviates from rational choice. Competition and its role as a process for disseminating information are considered in Chapter 4 . This includes a discussion of the

82 83 failure of competition in certain markets and the effect of this failure on decision-making. Chapter 5 argues that where competitive forces fa il, it should be expected that information sources will collude or act in parallel fashion at the expense of those needing the information. Chapter 6 lists a number of hypothetical ways an individual may bias the information he receives. A number of heuristic methods are considered. Chapter 7 considers the effects of these information problems on a polity of many individuals, arguing that under certain circumstances, systematic biases should occur.

The choice of An Economic Theory of Democracy as the subject of the critique is justified by several reasons. The work has been considered by some theoreticians to be the best of its genre.1 It forms the point of de­ parture for a sizable number of other works of positive political theory and

2 the theory of the economics of social choice. The book is representative of a large body of political and economic theory in its use of the rational individuality assumption, the self-interest axiom , and treatment of informa­ tion in some ways as a homogeneous commodity which, if supplied costlessly, will necessarily increase the individual's expected utility.

The argument of this thesis is that theory of this type has been un­ able thusfar to incorporate into models a number of the key determinants of policy. These include large organizations (bureaucratic, corporate, etc.), specialization of the labor force, heterogeneity of information, parallel actions by large numbers of individuals, and deliberate biasing of informa­ tion without sufficient information to the contrary being obtainable. 84

The theoretical construct of the rational Individual has been a useful tool In the analysis of certain types of economic markets and polities. It is not without its limitations, though. It may be useful in situations in which information is fairly simple (the cost of repairing shovels, the expected yield of a crop under given circumstances, e tc .). But, the true costs and benefits of building nuclear power plants>~ medical research, funding of various long-term government programs, and genetic engineering are not clear to laymen and probably not even to experts. Since the individual must rely on experts for this information, his decisions may be biased in the direc­ tion of their opinions or what he perceives to be their opinions; d? in the case of distrust, he may be biased improperly away from their opinions. It is not difficult to make the case that the interests of laymen and experts w ill not always coincide. Where their interests diverge can determine how the formers' utilities are affected by information problems. The expert may have the ability both to bias the information the layman receives and to predict the manner in which the layman's heuristic processes w ill further bias information received. The individual may be relatively powerless at times to combat this susceptibility.

Implicit in much of information theory is a belief that "more is better."

In other words, if an individual is given an additional costless increment of information, it is assumed that ceteris paribus his expected utility will be at least as high, and possibly higher than before. However, situations can be shown where this is not true. An individual deciding whether or not to have 85 surgery has some expected u tility , given the information structure from which his decision probabilities are derived. If he can get a costless increment of information, it w ill be likely to come from a doctor. If advice from the medical profession as a whole is biased , increasing his amount of information may only bias his decision further. Additional information may lower his expected u tility — a proposition seldom seen in the economic literature of _ information. Conceivably, if an infinite amount of costless advice were avail­ able to the individual, he could go to medical school and found a research center to help in his decision-making. But, this is not feasible, so small increments of information must suffice.

This thesis has defined the systematic biases in’ the polity as occurring either in the structure of the information itself or in the way individuals in society interpret the information they receive. The first occurs if the information the individual receives, randomly processed, would lead him to an expected decision other than his preference under perfect information. The second bias, primarily heuristic, leads the individual to bias even in itially unbiased informa­ tion.

Either of these tendencies to systematically bias the individual's choice can be manipulated by an information source more knowledgable in some aspect of the transaction . Furthermore, the self-interest axiom would lead us to believe that if this can be done, it w ill whenever the interests of the source come into play.

The argument can be made that these systematic biases might become more severe given certain situations. Increased specialization could be a 86 source of bias since individuals would tend to know more about their own occupations and less about the occupations whose products bear directly on their u tility . Longer time horizons for technology would also be a conceivable source of bias. The realities of modern technology are such that estimating the true long term costs and benefits of particular policies becomes less and less exact.

The problems involved here bear especially on economic and positive political models which use tacit or explicit assumptions concerning the com­ petitiveness of the information sources in society. The social benefit of competition can be interpreted as the providing of a conflicting mass of information out of which the individual can derive a more advantageous choice than might otherwise be possible. Monopoly in production or infor­ mation or political power may have as its greatest cost the stifling of the forces of intellectual conflict which determine the possibilities for society.

No attempt is made here to determine the relative advantages of particular levels of technology and specialization. The point made by this thesis is that the realities of these factors require fundamentally different ways of studying society's institutions and processes.

A large firm may not perform as just a large version of a small firm .

A technology whose effects extend for centuries may require a different kind of scrutiny than one whose time horizon is a year or two. Near total reliance of individuals on the information provided by experts may not average out to the perfect information solution. In the presence of technologies, informa- 87 tion becomes a highly heterogeneous commodity, and the way individuals and society as a whole process it becomes crucial in the determination of policy and transactions.

The problems of information biases discussed here may be of an especially severe nature in a political setting as opposed to an economic setting. In economic markets, it can be argued, the true costs and benefits may at least be approximated by the price system, excess supplies and demands, profits, and other measurable quantities. Determining and defining political successes and failures is a far more elusive task. The logic of voters and politicians in such a "market11 is based on decisions made under circumstances of great uncertainty and variance of perception. The "commodi­ ties" purchased by the voter are highly amorphous goods, if they can be called that. The voter is uncertain, as Downs states, of the politician's true beliefs, policies, abilities, and other qualities. . Unlike the purchase of a simple economic good, comparison of entire ideologies might be subject to a variance too great for the rationality model. Similarly, the decisions of the politicians are made under circumstances of wide uncertainty.

There is no a priori reason to believe the decisions of those in political markets approximate rational decision-making. Reasons have been offered why the system will tend to be biased. The implication is that if a theoretician believes the rational individual model provides a closer approximation of the truth than other models, then it should be used. If not, a better approximation should be sought.

Thus, the intention of this thesis has been to suggest a direction in 88 which research could move in politics and economics. The intention is also to suggest that without accounting for these significant factors, models will continue to have far less explanatory power than they could.

In particular, the direction suggested is the inclusion in positive political models certain aspects of information theory and social psychology.

Information theory can provide a probabilistic basis with which to hypothe­ size the arguments of the thesis. Social psychology suggests several areas in which these hypotheses might be developed. The result can be models signifi­ cantly richer in analytical power than those currently in existence, and if so, they w ill have served some useful purpose in providing closer approximations of fact. 89

Notes to Chapter 8

1 . See comments Brian Barry, Sociologists, Economists, and Demo­

cracy (London: The Macmillan Company, 1970), p. 24; and Karl W .

Deutsch, "Quantitative Approach to Political Analysis: Some Past

Trends and Future Prospects," in Hayward P. A lker, J r ., Karl W .

Deutsch, and Antoine H . Stoetzel, eds., Mathematical Approaches

to Politics (Washington: Jossey-Bass, In c ., Publishers, 1973), p. 1.

2. For example, Barry, Sociologists, ch. 2; and Gordon Tullock,

Toward a Mathematics of Politics (Ann Arbor: University of Michigan

Press, 1967), ch. 4. 90

APPENDIX

The following economic terms are defined and described at length in

Edwin Mansfield, Economics: Principles, Problems, Decisions, 2nd ed. (New

York: W.W. Norton and Company, Inc., 1977).

Economic term — Pages in Mansfield Collusion...... 5917^ 3-94 Competition ...... 50, 59, 84, 535-40, 556-63, 569-71, 577, 581-82, 592-95, 601-2, 613-14, 621-26, 662, 685-97 Consumer...... 58, 60, 69, 83, 111, 461-80, 501-02 Demand Curve ...... 29, 60-61, 66-68, 97-98, 484-505, 565-6, 584-86, 621-25, 638-40 Equilibrium...... 64-67 Indifference curves (map) ...... 474-76, 505 M arket ...... 59, 60-63, 75-76, 84 Monopoly...... 418, 556, 563-74, 577, 581-82, 598- 603, 662 O ligopoly...... 556, 577, 583-96, 600-01 Product Transformation C u r v e .... 43-49, 112-13, 390-91, 713-14 Rational Choice...... 469 Specialization (division of labor) 21-22 Supply Curve ...... 62-63, 540-42, 559-61 U tility...... 464-65, 475-76 W elfare ...... 692-93, 695-97

The following statistical terms can be found in Judith D . Handel,

Introductory Statistics for Sociology (Englewood C liffs -N .J .:Prentice-H all,

Inc., 1978).

Biased Estimators...... 295, 302 Efficient Estimators...... 295-96 M ean ...... 103-4, 199-200, 217 Probabilities...... 243-80 Skew ...... 84, 294-95 Variance...... 103-04, 199-200, 217 91

BIBLIOGRAPHY

Abelson, R. P. "Social Psychology's Rational M an." in G .W . Mortimore and

S. I. Benn, eds., The Concept of Rationality in the Social Sciences.

London. Routledge and Keegan Paul, 1974.

Arrow, Kenneth J. Social Choice and Individual Values . New York: John Wiley

and Sons, In c ., 1951.

Barry, Brian. Sociologists, Economists, and Democracy. London: The Macmillan

Company, 1970.

Berkowitz, Leonard, ed. Advances in Experimental Social Psychology, vo l. 10.

New York: Anderson Press, 1977.

Berle, Adolf A ., Jr. and Means, Gardiner C. The Modern Corporation and

Private Property. New York: The Macmillan Company, 1932.

Bernstein, M . H. "Independent Regulatory Agencies: A Perspective on Their

Return." Annals of the American Academy of Political and Social

Science (March 1972): 14-26.

Buchanan, James. "The Pure Theory of Government Finance: A Suggested

Approach." Journal of Political Economy 57 (December 1949): 496-505.

and Tullock, Gordon. The Calculus of Consent: Logical Founda­

tions of Constitutional Democracy. Ann Arbor: The University of

Michigan Press, 1962. 92

Calhoun, John C. "Disquisition on Government." Katz, Cartwright,

Eldersveld, and Lee, eds. , Public Opinion and Propaganda. New

York: The Dryden Press, 1954.

Coyne, J . R ., Jr. "Snow Job: The Politics of Anger." National Review,

April 27, 1979, pp. 532-33.

Dahl, Robert. Who Governs? Democracy and Power in an American C ity .

New Haven: Yale University Press, 1961.

Deutsch, Karl W. "Quantitative Approach to Political Analysis: Some Past

Trends and Future Prospects." in A lker, Howard P . , ’ Jr.; Deutsch,

Karl W .; and Stoetzel, Antoine H ., eds. Mathematical Approaches

to Politics. Washington: Jossey-Bass, In c ., Publishers, 1973.

Downs, Anthony. An Economic Theory of Democracy. New York: Harper and

Row, 1957.

Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago

Press, 1962.

. "The Methodology of Positive Economics." Essays in Positive

Economics. Chicago: University of Chicago Press, 1953.

Galbraith, John Kenneth. The Affluent Society. Boston: Houghton Mifflin

Company, 1958.

. American Capitalism. Boston: Houghton M ifflin Company, 1952.

. Economics and the Public Purpose. Boston: Houghton M ifflin

Company, 1973. 93

. The New Industrial State . Boston: Houghton M ifflin Company,

1967.

Handel, Judith D . Introductory Statistics for Sociology. Englewood C liffs,

N. J.: Prentice-Hall, Inc., 1978.

Hayek, F . A . "The Use of Knowledge in Society." American Economic

Review 35 (September, 1945): 518-530.

Henderson, James M . and Quandt, Richard E. Microeconomic Theory: A

Mathematical Approach. New York: McGraw-Hill Book Company, 1980.

Hirshleifer, Jack. Price Theory and Applications. Englewood C liffs, N .J .:

Prentice-Hall, Inc., 1976.

Hotelling, Harold. "Stability in Com petition." The Economic Journal 39:41-57.

Huntington, Samuel P. "The Marasmus of the ICC: The Commission, The

Railroads, and the Public Interest." Yale Law Journal 61 (April 1952):

467-509.

Jefferson, Thomas. The Writings of Thomas Jefferson, Albert Ellery Bergh, e d .,

vo l. 13. Washington: The Thomas Jefferson Memorial Association, 1907.

Jones, E .E . and Nisbett, R .E. "The Actor and the Observer: Divergent Per­

ceptions of the Causes of Behavior." in E. E. Jones, et al.,eds.,

Attribution Perceiving the Causes of Behavior . Morristown, N .J .:

General Learning Press, 1971.

Kahneman, D . and Tversky, A . "Subjective Probability: A Judgment of

Representativeness." Cognitive Psychology 3 (1972): 430-454. 94

Kahneman, D . and Tversky, A . "On the Psychology of Prediction.” Psycho­

logical Review 80 (1973): 237-51.

K elley, H .H . "Attribution in Social Interaction." in Jones, E.E. et ja L , eds.

Attribution Perceiving the Causes of Behavior. Morristown, N . J.:

General Learning Press, 1971.

Mansfield, Edwin. Economics: Principles, Problems, Decisions, 2nd ed. New

York: W. W. Norton and Company, Inc., 1977.

Milgram, S. "Behavioral Study of Obedience." Journal of Abnormal and

Social Psychology 67 (1963): 371-78.

M ill, John Stuart. On Liberty. Currin V. Shield, ed., New York: The Bobbs-

Merrill Co., 1956.

Mills, C. Wright. The Power Elite. New York: Oxford University Press, 1956.

Morgenthau, T . and M aier, F. "^he Politics of Snow." Newsweek, February 19,

1979, p. 34.

Nisbet, Robert A. xhe Quest for Community. New York: Oxford University

Press, 1953.

Nisbett, R. E.; Borgida, E.; Crandell, R.; and Reed, H. "Popular Induction:

Information Not Always Informative." in Carroll, J. and Payne, J.,

eds., Cognitive and Social Behavior. Potomac, M d .: Laurence Erl—

baum Associates, 1976.

Ross, Lee. "The Intuitive Psychologist and His Shortcomings: Distortions in

the Attribution Process." in Berkowitz, Leonard, e d ., Advances in

Experimental Social Psychology, vo l. 10. New York: Anderson Press,

1977. 95

Scherer, F. M . Industrial Market Structure and Economic Performancep 2nd ed.

Chicago: Rand M cN ally College Publishing Company, 1980.

Scitovsky, Tibor. Welfare and Competition: The Economics ot a Totally Em-

ployed Economy. Chicago: Richard D c Irwin, Inc., 1951.

Smith, Adam. The Wealth of Nations. Modern Library Edition. New York: The

Modern Library, 1937.

Thompson, Victor A. Modern Organization. New York: Alfred A. Knopf, 1965.

"Tragedy in Hopewell: Kepone Poisoning of Life Science Product Company

Employees." Time, February 2, 1976, p. 42.

Tversky, A . and Kahneman, D . "Judgment Under Uncertainty: Heuristics and

Biases." Science 185 (1974), pp. 1124-1131.

W ilhoit, Francis M . The Politics of Massive Resistance. New York: George

Brazil ler, 1973. VITA

Robert Francis Graboyes

Born in Petersburg, Virginia, January 11, 1954. Graduated from Pe­ tersburg High School in June, 1972. Received B.A. in English from the Uni­ versity of Virginia in 1976.

Worked professionally for several political campaigns, 1976-1977.

News reporter, 1978-1979, primarily for the Radford, Virginia News-Journal.

Entered the College of W illiam and Mary in June, 1979 as a gradu­ ate student in the Department of Government, serving as a graduate assistant.

Completed course work in M ay, 1980.

In September, 1980, the author entered Columbia University as a doctoral candidate in economics. Awarded a readership and research assis- tantship. Also received summer fellowship and in-absentia fellowship from the American Institute for Economic Research, Great Barrington, Massachu­ setts.